Togo - First and Second Technical Assistance and Structural Adjustment Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7361 PROGRAM PERFORMANCE AUDIT REPORT TOGO FIRST STRUCTURAL ADJUSTMENT CREDIT FIRST AND SECOND TECHNICAL ASSISTANCE CREDITS (CREDITS 1365-, 3-, 930- AND 1270-TO) June 30, 1988 Operations Evaluation Department This document has a retricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS BCEAO Central Bank of West African States CCCE Caisse Central de Coopération Economique CFAF CFA franc CIMAO Société des Ciments de l'Afrique de l'Ouest FNADP Fonds National pour l'Amortipsement de la Dette Publique GDP Gross Domestic Product IDA International Development Association IMF International Monetary Fund IOTO Industrie des Oléagineux du Togo ITP Industries Togolaises des Plastiques ITT Industrie Textile Togolaise OPAT Office des Produits Agricoles du Togo OTP Office Togolais des Phosphates SDR Special Drawing Rights SNI Société Nationale d'Investissement SNS Société Nationale Sidérurgique SODETO Société Togolaise des Détergents * SOPROLAIT Société des Produits Laitiers du Togo SOTEXMA Société Togolaise d'Exploitation de Matériel (agricultural equipment plant) SOTOCO Société Togolaise du Coton SOTOMA Société Togolaise de Marbrerie et de Matériaux STH Société Togolaise d'Hydrocarbures TOGOGRAIN Office National des Produits Vivriers TOGOROUTE Société Nationale des Transports Routiers TOGOTEX Société Togolaise de Textile WDR World Development Report FOR OFICIAL USE ONLY THE WORLD BANK Washngton, D.C. 20433 U.S.A. OffNce of ofector-Gewal Operatenm tvaluatum .Tine 30, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Program Performance Audit Report on Togo First Structural Adjustment Credit and First and Second Technical Assistance Credits (Credits 1365-, 3-, 930-, and 1270-TO) Attached, for information, is a copy of a report entitled "Program Performance Audit Report on Togo - First Structural Adjustment Credit and First and Second Technical Assistance Credits (Credits 1365-, 3-, 930 and 1270-TO)" prepared by the Operations Evaluation Department. Yves Rovani by Graham Donaldson Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PROGRAM PERFORMANCE AUDIT REPORT TOGO FIRST STRUCTURAL ADJUSTMENT CREDIT FIRST AND SECOND TECHNICAL ASSISTANCE CREDITS (CREDITS 1365-, 3-, 930- AND 1270-TO) TABLE OF CONTENTS Page No. Preface......................................................... i Basic Data Sheets....................... .. ............... ii Executive Stummary.,. ........................ .. ............ v I. GENERAL BACKGROUND.......................... 1 II. BANK-TOGO RELATIONS AND THE GENESIS OF THE STRUCTURAL ADJUSTMENT CREDIT............................. 2 A. Bank-Togo Relations of Relatively Long Standing....... 2 B. The Long Genesis of the Structural Adjustment Credit.. 2 C. The Two Technical Assistance Credits. ............. 4 III. MAIN POINTS OF THE STRUCTURAL ADJUSTMENT PROGRAM......... 4 A. Financial Stabilization............................... 5 B. Recovery and Restructuring of the Economy............. 7 C. Technical Assistance .............................. 12 IV. IMPLEMENTATION OF THE STRUCTURAL ADJUSTMENT PROGRAM...... 14 V. INITIAL RESULTS........................................ 30 A. Detailed Results by Sector................ ....... 30 B. Macroeconomic Results... .............. .... 34 VI. DIFFICULTIES IN PROGRAM PREPARATION AND EXECUTION........ 36 .. The Role of the Bank.................................. 36 B. Problems Badly Bandled................................ 37 VII. CONCLUSIONS AND RECOMMENDATIONS............ 44 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (continued) COMPLETION REPORT I. Developments Lending to the Structural Adjustment Program .............................................. 49 II. SAL Objectives and Monitorable Actions................... 51 III. Progress Under the Structural Adjustment Program......... 53 IV. Release of the Second Tranche............................ 67 V. Credit Administration ............................... 68 VI. The Role of the Bank..................................... 70 VII. Summary and Conclusions.................................. 73 ANNEXES PROGRAH PERFORMANCE AUDIT REPORT TOGO FIRST STRUCTURAL ADJUSTIENT CEDIT FIRST AND SECOND TECHNICAL ASSISTANCE CREDITS (CREDITS 1365-, 3-, 930- AND 1270-TO) PREFACE This performance audit report relates to the First Structural Adjustment Credit and two Technical Assistance Credits granted to Togo. The US$40 million Structural Adjustment Credit was financed half out of regular IDA resources and half out of the IDA Special Fund. The credit was approved on May i7, 1983, and was disbursed in two tranches, the first of US$25 million upon credit effectiveness on June 17, 1983, and the second of US$15 million after Togo had satisfactorily met the conditions specified for disbursement. In the form in which it was presented on February 16, 198!, in the Togolese Government's Declaration of Economic Policy, the structural adjustment program comprised two main components: financi&l stabilization, on the one hand, and recovery and restructuring of the economy, on the other. Cofinancing itr. an amount of US$9.5 million was provided in the form . of a grant from the Natherlands Government in October 1984. Simultaneously with the preparation of the,Structural Adjustment . Credit, the Togolese authorities and the Bank prepared two Technical Assistance Credits. The agreement relating to the first, of US$2.2 mil- lion, was signed on June 22, 1979, and that pertaining to the second and larger one, of US$3.5 million, was signed on July 2, 1982. The Program Performance Audit Report (PPAR) comprises the Program Performance Audit Memoran4um (PPAM), prepared by the Operations Evaluation Department, and the Project Completion Report (PCR) drawn up by the World Bank Africa Regional Office. The PPAM is. based on the PCR, the Staff Appraisal Report and the President's Report, the documents relating to the credits, the minutes of Executive Board meetings concerning the project, the project dossiers and discussions with Bank staff involved. The borrow- er did not prepare a project completion report. The report was sent to the Togolese authorities and the cofinan- cier, the Netherlands Government, in draft form for review and reaction. However, no comments were received. - ii - PROGRAM PERFORMANCE AUDIT REPORT TOGO FIRST STRUCTURAL ADJUSTMENT CREDIT (CREDIT 1365-TO) BASIC DATA SHEET (US$ millions) CREDIT STATUS As of 03/31188 Original Disbursed Cancelled Repaid Outstanding Credit 1365-TO 40.0 40.0 0.0 0.0 40.0 CUMULATIVE CREDIT DISBURSEMENT FY82 FY83 FY84 (i) Planned 25.0 40.0 (ii) Actual 23.1 36.9 40.0 (iii) (ii) as X of (i) 92.4 92.3 100.0 OTHER CREDIT DATA Original Actual Initiation 03/25/81 03/25/81 Appraisal Mission n.a. n.a. Negotiations n.a. n.a. Board approval -- 05/17/83 Ctedit Agreement 06/17/83 06117/83 Effectiveness 09/14/83 09126183 Closing date 12/31/85 12/31/85 MISSION DATA Month/ No. of No. of year weeks persons Identification 10/80 3 2 Discussion SAC Program 12/80 1 3 Development Basis for SAC Program 02/81 1.5 8 Public Investment and State Enterprises Mission 01/82 3 2 Discussion of SAC Program 04/82 3 2 Finalization of Letter of Development Policies 12/82 1 2 Review 1983 Public Investment (Combined Mission) 03/83 2 2 Implementation of SAS Program 06/83 1 1 Progress in Supplementing SAC Program (Oombined Mission) 10/83 2 1 Supervision Mission 11/83 5 2 Released of 2nd Tranch- (Combined Mission) 01/84 4 1 SAC Follow-Up (Multipurpose Mission) 02/84 4 1 Supervision SAC Program 03/84 4 4 Supervision SAC (Combined Mission) - - 4 PROGRAM PERFORMANCE AUDIT REPORT TOGO FIRST TECHNICAL ASSISTANCE CREDIT (CREDIT 930-TO) BASIC DATA SHEET (US$ millions) CREDIT STATUS As of 03131/88 Original Disbursed Cancelled Repaid Outstanding Credit 930-TO 2.20 2.20 0.00 0.00 2.20 CUMULATIVE CREDIT DISBURSEMENT FY80 FY81 FY82 FY83 FY84 FY85 FY86 (i) Planned .200 1.050 1.900 2.200 (ii) Actual .012 .167 .574 1.188 1,763 2,129 2,200 (iii) (ii) as a % of (1) 6.0 16.0 30.2 54.0 80.1 96.7 100.0 OTHER PROJECT DATA Original Actual Project Initiation 10/78 -- Appraisal Mission 12/78 -- Negotiations 05/15-16/79 -- Board Approval n.a. 06/79 Credit Agreement n.a. 06/79 Effectiveness 09/79 10/79 Closing date 12/82 02/86 MISSION DATA Month/ No. of No. of Staff Year Weeks Persons Weeks Appraisal 12/78 n.a. n.a. n.a. Discuss TA Program 04/82 2 Supervision I 10/82 " 3 Supervision II 03/83 2 Supervision III 06/83 1 Supervision IV 03/84 4 U Supervision V 03/85 4 - iv - PROGRAM PERFORMANCE AUDIT REPORT TOGO SECOND TECHNICAL ASSISTANCE CREDITS (CRErIT 1270-TO) BASIC DATA SHEET (US$ millions) CREDIT STATUS As of 03/31/88 Original Disbursed Cancelled Repaid Outstandina Credit 1270-TO 3.50 3.25 0.0 0.0 4.26 CUMULATIVE CREDIT DISBURSEMENT FY82 FY83 FY84 FY85 FY86 FY87 (i) Planned - 1.200 2.400 3.300 3.500 (ii) Actual .247 1.351 2.049 3.059 3.250 (iii) (ii) as a Z of (i) 20.5 56.2 62.0 87.4 100.0 OTHER CREDIT DATA Original Actual Project Initiation 12/81 -- Appraisal Mission 03:82 -- Negotiations 05/82 n.a. Board Approval 06/82 06/82 Credit Agreement 07182 07/82 Effectiveness 09/82 11;82 Credit Closing 06/86 06/86 MISSION DATA Month/ No. of No. of Staff Year Weeks Persons Weeks Discuss TA Program 04/82 n.a. 2 n.a. Supervision I 10/82 3 Supervision II 03/83 2 Supervision III 03/84 4 Supervision IV 03/85 4 Iv PROGRAM PERFORMANCE AUDIT REPORT TOGO FIRST STRUCTURAL ADJUSTMENT CREDIT FIRST AND SECOND TECHNICAL ASSISTANCE CREDITS (CREDITS 1365-, 3-, 930- AND 1270-TO) EVALUATION SUMMARY Introduction Togo used the phosphate boom of 1974--prices increased fourfold in the space of a few months--to effect large-scale investments and modernize its economy. In a few years a very large number of sectoral public enter- prises were created. This euphoria was not destined to last. At the end of 1975 export prices fell and budgetary revenues from phosphate sales dropped in 1976 to less than half the levels reached at the peak of the boom. The subsequent rise in coffee and cocoa prices was only sufficient to very partially off- set the fall in phosphate prices. As the investment program was not cut back despite the reversal in the economic situation, the Government was obliged to resort to very costly external borrcwing. Being unable to ob- tain sufficient resources to meet its debt comitments, Togo was suddenly faced with an acute financial crisis. Stand-by arrangements were negotiated with the International Monetary Fund (IMF) for the 1979/80 and 1980/81 budget years. At the same time as Togo intensified its recourse to the IHF, it was also found neces- sary, in view of the extent and seriousness of the crisis in the country's economy, to open negotiations with the World Bank for a structural adjust- ment credit. The negotiations were started in 1980 and continued for three years. This was because betore any credit could be granted by IDA, Togo had first to reach agreement with the IMF and obtain a rescheduling of its existing debt. On March 4, 1983, a stand-by arrangement was concluded with the IMF for the period March 1983-March 1984, and one month later rescheduling of the external debt was successfully negotiated with the Paris Club. On May 17, 1983, the IDA Board approved the Structural Adjuretment Credit for Togo in an emount of SDR 36.9 million (US$40 million), to be disbursed in two tranchee, of US$25 million and US$15 million, respec- tively. Simultaneously with the Structural Adjustment Credit, the Togolese authorities and the Bank prepared two Technical Assistance Credits (TACs)t the agreement on the first, of US$2.2 million, was signed on June 22, 1979, - vi - while that on the second and larger one, of US$3.5 million, was signed on July 2, 1982. A third technical assistance credit for US$6.2 million was signed on June 24, 1985. Main Objectives of thE Structural Adjustment Program As presented by the Togolese Government in its Declaration of Economic Policy on February 16, 1983, the structural adjustment program comprised two main components: financial stabilization, on the one hand, and recovery and restructuring of the economy, on the other. Financial Stabilization The main thrusts of the financial stabilization program were as follows: (i) substantial reduction of the global public finance deficit; (ii) increasing of the country's capacity to service its external debt; (iii) prohibition of contracting any new external loan running for less than 12 years on non-concessional terms; (iv) complete reorganization of the public enterprise sector, and (v) modification of the agricultural price policy. Recovery and Restructuring of the Economy The structural adjustment was intended to bring about additional annual growth of 0.4X for the period 1980-85, then of 3.6Z in the following five years (1985-90). In order to achieve this aim, the measures envisaged covered practically all sectors of the Togolese economy: agriculture, energy, mining and industry, and public investment as a whole. - Agricultural policy had three main goals: (i) the general objec- tives of planning, coordination and research based on the prin- ciple of utilizing Togo's comparative advantages to the maximum; (ii) promotion of export crops, primarily through application of a mnre realistic price policy, and (iii) food crop development. - Energy policy was based on development of national resources (hydroelectricity, petroleum exploration, reforestation and search for renewable energy sources). - Mining policy was aimed at clarification of the relations between the State and the Office Togolais des Phosphates, in conjunction with diversification and restructuring of the mining sector. - Industrial policy was based on a review of the Investment Code designed to restore confidence on the part of Togolese and foreign investors. - Public investment policy consistid of ensuring improved program- ming with priority for projects offering the best return. - vii - * The key ministries (Planning, Rural Development. Industry and State Enterprises) were to bei.ait, thanks to the two TACs, from the assistance of experts and availability of research budgets for examination of certain priority sectors or projects. Difficulties Encountered in the Defining and Subsequent Application of the Proaram While the structural adjustment program was well designed in theo- retic terms and was well executed in the main, it must, however, be noted that it was ambitious and probably optimistic. It was optimistic first of all in the content, if not of the pro- gram itself, at least that of thi6 First Structural Adjustment Credit. This was in effect an "all sectors' credtt (public finances, agriculture, energy, industry, public enterprises, etc.) which sought to cover just about all bases. The Second Structural Adjustment Credit (US$30 million, approved at the beginning of 1985) is, for that matter, simply an extension of the first one and does not involve any new sector. While one might be tempted to consider the aim of covering all sectors of the economy to be excessive, it is also difficult to make a categoric judgment on this point. The fact is that the program's promoters appear to have opted for advancing on all possible fronts in order to achieve the biggest overall impact, taking the view that this tactic was feasible in the context of what was, after all, an economy of limited size. As they saw it, this global approach was to be continued in the second and subsequent credits. The program was in any event optimistic as regards implementation times. The majority of the measures decided on in the framework of the first credit were not fully applied until early 1985 and the credit itself was not fully disbursed until February 1985, whereas implemcntation of the measures concerned had been scheduled for the end of 1983. Some of them were even originally intended to be implemented before the signing date of the creditt The long preparation time of the program, often delayed by the difficulties which arose between the Togolese Government and the IMF, should have been used to make a more accurate assessment of the real tech- nical assistance needs. In the circumstances, the Bank staff appear to have put the c%rt before the horse in having the first TAC agreement signed before they L, ,e certain that the most appropriate technical assistance experts would be available at the time they were needed. The setting up of the technical assistance also posed some deli- cate problems. As regards both the symbiosa rith the Togolese administra- tion and the training and role of counterparts, it seems that some real difficulties were encountered. The large number of studies (more than fifty in all, thirty of them for the first TAC) also brought up some ques- tions about the choice of subjects and topics to be studied, their real value and the use to be made of them. - viii - Finally, it seems that the Togolese managers and official did not always consider themselves directly involved in the implementation of the program. However. it may also be that the Bank for its part failed to pay sufficient attention to Togo's institutional and administrative problems. The Results Financial Recovery Reduction of the public finance deficit was one of the main ob- jectives of this exercise. This was to be achieved by increasing tax rev- enues and at the same time cutting back public spending. Some commendable efforts were made in these two fields (adoption of a new Tax Code, freezing of public-sector salaries, etc.) And their effects are already apparent. The reduction in the public spending deficit, while small, is undeniable. However, the precariousness of this first achievement became evident in 1986 when the deficit worsened again as a result of some exceptional cir- cumstances (Summit of Heads of State of French-speaking countries, purchase of presidential aircraft). Servicing of the external debt was the second goal of the finan- cial stabilization program. Notwithstanding three further reschedulings between 1983 and 1985, the debt service burden has not been appreciably eased owing to the inadequate growth of export earnings. Resumption of Growth After three successive years of marked contraction (-3.5? in 1981, -3.7% in 1982 and -3.4% in 1983), the Togolese economy has once again posted growth since 1984 (1.3Z in 1984, 3.6Z in 1985 and 3.1? in 1986). This growth is due primarily to the increase in agricultural pro- duction, itself the result of favorable climatic conditions, it is true, but also a response to the incentive provided by higher prices. The step- ping up of the volume of public investments has contributed to the growth of the secondary sector while the expansion of regional trade has boosted growth of the tertiary sector. These quite favorable results have not, however, been sufficient to offset the increase in population, the demographic growth rate in Togo being at least 3.3?. This has brought about a slight drop in living stan- dards for the population as a whole, though It appears that it has been primarily the urban population that has borne the cost of adjustment. Sectoral Improvements It has been in the spheres of agriculture and public enterprises that the results of the adjustment program have been most apparent. - ix- After a period during which they moved steadily downward, producer prices for agricultural products were substan.ially increased as of the 1983/84 crop year, while the marketing of output has definitely produced results which, although varying from item to item, are distinctly better than before. The raising of producer prices has been all the more success- ful in that the Togolese authorities were initially skeptical, since they felt that a policy of subsidies coupled with provision of infrastructure (roads, schools, etc.) would be tore effective in resolving the agriculture problem. A specific aim of the program was to significantly trim the public enterprise sector, which had expanded disproportionately during the 1960s and 1970s, in order to enable the State to disengage itself and to allow the viable enterprises to find means to develop through better management. The Government demonstrated considerable dynamism in carrying out this highly important component of structural adjustment. As of June 1987, the fate of seventeen public enterprises had been permanently settled (two closures, five leased to private operators, five hotel management contracts and five privatizations). The Bank certainly played a substantial and valuable role in the implementation of the public enterprise reform pro- gram. The results obtained as regards agricultural producer prices and public enterprise reform were achieved in the macroeconomic adjustment context defined by the two credits. It is doubtful whether these results could have been achieved in the more limited context of speciic project financing. Progress has also been achieved in other fields. Investment pro- gramming and selection procedures have been improved somewhat. In late 1983 the Government adopted the principle of a three-year rolling invest- ment program, and forecasting rates of return is not an entirely unknown technique anymore. The establishment of a technical assistance program has resulted in, essentially, the assignment of several experts to three minis- tries (Planning and Industry, Rural Development, State Enterprises) and the conducting of numerous studies. Conclusions and Lessons for the Future Togo was one of the first West African countries to receive an IDA Structural Adjustment Credit. This credit was supported by two Technical Assistance Credits. These initial credits, granted in June 1983, June 1979 and May 1982, respectively, were complemented by a Second Structural Adjustment Credit and a Third Technical Assistance Credit in June 1985. A Third Structural Adjustment Credit has been approved in March 1988. The review of the implementation of these programs, such review being limited to 1984 and 1985 plus a part of 1986 (all the data for the latter year not yet being available) and which only considered the First Structural Adjust- ment Credit and the first two Technical Assistance Credits, leads to a mixed overall assessment. The positive aspects are undeniable. The structural adjustment program is based on a clear-sighted analysis of Togo's strengths and weaknesses, and comprises a set of measures the progressive implementation of which is a prerequisite for restoration of durable growth. The structural adjustment process officially under way in Togo since 1983 is a continuous process that has to be pursued on a long-term basis. Many of the measures included in the first credit will require years of application. In the macroeconomic sphere, the results are, for the moment, modest. This is largely due to external causes (fall in phosphate prices, depreciation of the dollar, rise in interest rates) the scale of which could not possibly have been foreseen at the time the program was prepared. - The content and implementation of the program give rise to some reserves on several points. The First Structural Adjustment Credit appeared to have been both ambitious and optimistic, while its execution schedule in particular was unrealistic. The technical assistance was ill planned, in part premature and poorly coordinated with the other aspects of the program. Here, too, the measures called for in the two Technical Assistance Credits were over-opti- mistic. Overall, the Bank appears to have acted in too rigid a manner. It displayed a lack of flexibility, applying set formulas without seeking to adapt its approach sufficiently to the particular features of Togo's situation. If the Bank had taken care to assign a permanent representative in the country as of the preparation of the program, certain problems could undoubtedly have been prevented. Finally, several highly important aspects of adjustment have not, in fact, been examined in sufficient detail; these include the training of Togolese counterparts and institutional and structural reforms within the Togolese administration. The lasting success of adjustment will depend largely on how the problems of senior staff training and the functioning of institutions are handled. It is accordingly desirable that this facet of adjustment be better integrated into the progressive implementation of adjustment programs in the future. PROGRA PERFORMANCE AUDIT MEMORANDUM TOGO FIRST STRUCTURAL ADJUSTMENT CREDIT FIRST AND SECOND TECHNICAL ASSISTANCE CREDITS (CREDITS 1365-, 3-, 930- AND 1270-TO) I. GENERAL BACKGROUND 1. Togo is a small country of 56,800 km2 with a population of about three million. Its per capita income is low (US$230 in 1985) and only grew at 0.3% p.a. between 1965 and 1985.1 2. After achieving independence in 1960, this young country opted for a liberal economy that was open to the exterior. It based its development on phosphate mining and cash crops such as coffee, cocoa and cotton. (Phosphates very swiftly came to represent more than 40% of exports, while coffee, cocoa and cotton together accounted for 25Z.) 3. The phosphate boom of 1974 contributed to a substantial increase in production and in budgetary revenues between 1970 and 1974. Trade also developed rapidly, owing to Togo's particularly favorable geographic location near Nigeria, Ghana, Burkina Paso and Niger. While agriculture's share in GDP has tended to decline, in relative terms, because export crops did not post the same expansion as phosphates, cotton production nevertheless increased markedly after 1970. As a result of all these favorable factors, Togo was able to maintain a growth rate of around 72 p.a. for more than a decade. 4. This marked growth was not immediately reflected in a deteriora- tion of domestic and external equilibria. At the beginning of the 1970s, prices were stable and the budget deficit was low. Investment, two-thirds of which was financed by national savings, represented no more than 152 of GDP, while the external debt was still within bounds with the debt-service ratio not exceeding 5%. 5. The favorable economic circumstances of the 1960s and early 1970s prompted the Togolese Government to use the new resources derived from phosphate exports to develop public investments and modernize the economy. As a result, a very large number of sectoral public enterprises were es- tablished, especially in infrastructure, industry and luxury hotels. How- ever, many projects proved unprofitable. 6. The boom did not last for long. As of the end of 1975, export prices fell and budgetary revenues from phosphate sales dropped in the 11 World Development Report, World Bank, 1987. - 2 - course of 1976 to less than half of what they had been. The higher prices subsequently obtained for coffee and cocoa served to offset no more than a small part of the drop in phosphate prices. 7. As the investment progrun was not reined in despite the reversal in the country's economic fortunes, the Government was obliged to offset the fall in export earnings by intensified recourse to very high cost ex- ternal borrowings. 8. In 1978, when phosphate prices were very much lower than at the height of the boom, investment accounted for 46% of GDP. As lack of re- sources made it impossible for the country to meet more than 60Z of its external debt commitments, Togo found itself abruptly plunged into an acute financial crisis. 9. As of 1979, the balance of payments current account deficit stood at 23% of GDP. The Government was accordingly obliged to take radical measures to cut back investments and ordinary expenditures. Stand-by arrangements were negotiated with the International Monetary Fund (IMF) for the 1979/80 and 1980/81 budget years. At the same time, the magnitude and seriousness of the crisis in the Togolese economy also spurred the Govern- ment to open discussions with the World Bank with a view to obtaining structural adjustment assistance. II. BANK-TOGO RELATIONS AND THE GENESIS OF THE STRUCTURAL ADJUSTMENT CREDIT A. Bank-Togo Relations of Relatively Loni Standing 10. In 1979, when the need for structural adjustment became apparent, Togo had already been a Bank borrower for some considerable time. An ini- tial loan of US$4.3 million was granted by the Bank in 1968 for maintenance of a highway. Then, in the space of six years, between 1973 and 1978, six credits aggregating US$54 million were granted by IDA. Two of these were for improvement of the road system and four for development of the agricul- ture sector. Four loans totalling US$60 million were also granted by the Bank in 1976 to the Socidtd des Ciments de l'Afrique de l'Ouest (US$49.5 million) and to the Governments of Togo, COte d'Ivoire and Ghana (US$3.5 million each) for construction of a clinker plant. These loans were fully disbursed as of April 11, 1980. B. The Long Genesis of the Structural Adjustment Credit 11. An initial Bank mission appraised the Togolese economy at the end of October and early November 1980 with a view to a structural adjustment program. This first mission had to work in a difficult climate owing to the sudden deterioration of Togo's situation. It had in fact become neces- sary to reschedule the external dobt in 1979, and again in 1981. Debt obligations represented nearly a third of tax receipts in 1981, while pay- ment arrearb continued to mount. - 3 - 12. On March 25, 1981, the President of Togo wrote to the President of the World Bank to inform him about Togo's severely straitened circumstances and of the steps he proposed to take to restore the situation. The President of Togo requested the Bank's technical and financial assistance in this, and also noted that a stand-by arrangement had been negotiated with the IMF. 13. Following this letter, a ministerial delegation led by the Minister of Planning and Administrative Reform was received by the President of the Bank on April 14, 1981. 14. On April 22, President McNamara gave P sident Eyadema his consent to the Bank staff continuing to work with the Togolese authorities on de- termining the elements of a structural adjustment program and the nature of the assistance that the Bank would be able to provide to Togo. 15. In October, on the occasion of the annual meeting between the Bank and Togolese authorities, the Minister of Planning confirmed his interest in a structural adjustment credit for US$25 million. 16. On December 2, the Bank Loan Committee met to consider the appli- cation for a structural adjustment credit on the basis of the memorandum prepared on November 23 by the Regional Vice 'President for Western Africa. A mission then spent December 6-13, 1981 in Togo. and all of 1982 was spent on drawing up the program. Four successive missions were sent to Togo for this purpose. 17. Following the meeting held on March 8, 1982 with the President of Togo, a draft memorandum was prepared on March 11 and 12 by IDA, on the one hand, and the Minister of Planning and the Minister of Finance's Directeur de Cabinet, on the other. In May, this draft memorandum was revised. It was difficult to proceed much further because of the deterioration in rela- tions with the IMF. Owing to an unexpected fall in phosphate earnings, Togo was unable to meet performance criteria set by the Fund, as a result of which the stand-by arrangement was suspended. 18. As long as the dialogue with the Fund was not resumed, there could be no question of the structural adjustment program being presented for approval. Accordingly, at the same time as the content of the program was planned, the Bank and the Togolese authorities also pursued other discus- sions on specific topics (diagnostic study on TOGOGRAIN, future of the State enterprises, raising of producer prices for food crops, etc.). 19. In November, as the prospects for a new agreement with the IMF appeared better, it once again became possible to pursue preparation of the structural adjustment program. A misslon was sent to Togo for that purpose in mid-December 1982. 20. On February 15 and 16, 1983, a Togolese delegation and IDA repre- sentatives met to negotiate the credit agreement. Signing of this agreement was made subject to: (i) conclusion of the stand-by arrangement with the IMF, and (ii) agreement on rescheduling the external debt with Togo's public and private creditors. 21. On March 4 the stand-by arrangement was concluded with the IMP for the period March 1983-March 1984, for an amount of SDR 21.4 million 1(US$23.3 million). One month later, on April 11 and 12, the agreement on rescheduling of the external debt was obtained in the Paris Club. 22. Since the conditions set on February 15 were thus met, on May 17, 1983, the Ba: ,IDA Board approved the structural adjustment credit in an amount of SDR 36.9 million (US$40 million) in two tranches: US$25 million and US$15 million. The term of the credit was set at 50 years, with a grace period of 10 years and no interest.2 On June 13, 1983, a Bank resi- dent mission was installed in Lomd. C. The Two Technical Assistance Credits 23. Concurrently with and even, it could be said, prior to the prepa- ration of the structural adjustment credit program, the Togolese authori- ties and the Bank had set up two technical assistance credits (with a three-year interval between them), both financed by IDA: - the first, for US$2.2 million, was presented to the Bank/IDA Board on May 31, 1979 and signed on June 22, 1979; - the second, and larger, of the two credits, for US$3.5 million (SDR 3.1 million) was presented to the Bank/IDA Board on May 28, 1982 and signed on June 2, 1982. III. MAIN POINTS OF THE STRUCTURAL ADJUSTMENT PROGRAM 24. As presented on February 16 by the Togolese Government, in its Declaration of Economic Policy,3 the structural adjustment program can be briefly summed up as follows: creating conditions conducive to sustained medium-term growth, while stabilizing the financial situation in the short term by reducing the budget deficit and the balance of payments current account deficit. 25. Put another way, the program comprised two main components: financial stabilization, and recovery and restructuring of the economy. 2/ In actual fact, a few days later a slight change of a purely technical and legal nature was made: half of the SDR 36.9 million (i.e., SDR 18.45 million) was charged to the Association's regular resources and the other half to its Special Fund. 3/ Memorandum on the Togolese Government's Economic Policy, President's Report (No. P-3534-TO), pp. 49 et seq., April 26, 1983. - 5- A. Financial Stabilization 26. Reduced to essentials, the financial stabilization program com- prised the following seven points: (a) Substantial reduction of the overall public finance deficit, the object being to bring this deficit down from 6.1? of GDP in 1982 to 3.2% in 1983. This was to be accomplished by increasing rev- enues while simultaneously reducing ordinary and capital expendi- tures. (b) Stepping up of external debt service in 1983, paying off not only the full amounts due under the Paris Club agreements but also CFAF 10 million of arrears. (c) Ban on contracting any new external loan for less than 12 years and on non-concessional terms. (d) Complete reorganization of the public enterprise sector. (e) Revision of agricultural pricing policy. (f) Monthly monitoring of the main financial and monetary aggregates in order to verify their conformity with the Operformance criteriae (reduction of arrears, monetary aggregates, etc.). (g) In-depth review of the program in the course of the last quarter of 1983, after the possible securing of a further rescheduling agreement. 27. To facilitate the achievement of points (f) and (g), it was in- tended that the Togolese Government would set up, as of April 1, 1983, a system of macroeconomic accounts designed to produce precise data each quarter on the financial operations of the Treasury, the Office Togolais des Phosphates, the Office des Produits Agricoles du Togo and the other main public services such as the PTT. 28. As regards point (d) "Complete reorganization of the public en- terprise sector," the government program included specific commitments: STH (Soci4t4 Togolaise d'Hydrocarbures). Consultants were to be hired to study how best to convert the refinery, which was con- sidered uneconomic, into a depot for the storage of imported products. The consultants' study was to be completed in May 1983 and its conclusions considered before August 21, 1983, so that the decisions on conversion of the plant could be taken before the end of 1983. -6- SNS (Socidtd Nationale Siddrurgique). Consultants were to be engaged at the end of March 1983 to analyze SNS's problems (raw material procurement, production, costs, management, sales, etc.) and to examine its prospects for the future. Various alternative scenarios were to be considered by the consultants: continuation of activities, temporary closure, permanent closure. Their rec- ommendations were to be studied in conjunction with the Bank so that the firal decision on SNS's future could be taken at the end of August 1983. TOGOTEX (Soci6td Togolaise de Textile). In June 1982 a team of consultants had already completed a study on this company's de- velopment prospects. A decision on TOGOTEX's future, and speci- fically on the possibility of new investments, was accordingly .o be taken by the Government in an agreement with the Bank at the end of May 1983. SOTOMA (Socidtd Togolaise de Marbrerie et de Matdriaux). Follow- ing the shutting down of this company, an initial study made by a group of consultants had put forward recommendations regarding the maintaining and expansion of the local depots of marble and other products. To round out this first study, a second study was envisaged that would focus on prospects for the production of marble and construction materials. This second study was to be finished by the end of July 1983, so that a decision could be taken in agreement with the Bank before the end of September 1983. TOGOROUTE (Socidtd Nationale de Transports Routiers). The priva- tization of this company was to be completed by the end of June 1983. Hotels: The Togolese Government undertook to form a holding company whose function would be: -- to determine the price policy of the different hotels and to bring the price war of recent years to an end; -- to set each year, starting from 1983, the amount of the sub- sidies to be paid to the 'Hotel du 2 Fdvrier," which subsi- dies were to be systematically reduced thereafter; -- to establish a common accounting system to be followed by all hotels. In general, the Togolese Government undertook to draw up a report on the public enterprises as a whole each year. As a consequent, financial audits of each enterprise having achieved an annual turnover of over CFAF 200 million were going to be required within six months of the close of the fiscal year. These audits would have to be conducted by certified - 7 - accountants. In addition, studies of the management of the main enter- prises would have to be made with Bank assistance. The first studies were to be of OPAT (June 1983), the Compagnie Nationale des Eaux (end 1983) and the Compagnie d'Energie Electrique du Togo (June 1983), their purpose being to determine the plans for the restructuring and medium-term expansion of the public industrial sector. B, Recovery and Restructuring of the Economy 29. If there were no structural adjustment, an annual growth rate of 1.9Z was forecast for the period 1980185, and nearly 3.22 for the following five-year period (1985/90). However, implementation of the program was expected to raise the rate to 2.3% for 1980/85, and then to 5.91 for 1985/90. In other words, the structural adjustment was to bring about an additional 0.4% growth for 1980/85, then 3.6Z more for 1985/90. 30. The "economic" measures envisaged covered all sectors of the Togolese economy: agriculture, energy, mining and industry, and the entire spectrum of public investment. Agricultural Policy 31. For the Togolese Government, agricultural policy was to consist of three main components, with general planning, coordination and research objectives. The development of agriculture was to be based on assessment of Togo's comparative advantages and have food self-sufficiency as its goal. Prior to 1983, agricultural development had been too fragmented, the different projects were not always coordinated and the overall strategy was not sufficiently coherent. 32. It was accordingly considered necessary to make an evaluation of the development projects in order to identify the successes and failures and, on the basis of the findings, to formulate a long-term rural develop- ment strategy. To do this, a research &nd planning unit was to be set up before March 31, 1983 in the Ministry of Rural Development. With the assistance of a team of consultants and Togolese experts, thip unit was to make a detailed study of the experiments under way and compl -ted projects in order to: - evaluate and compare the respective advantages and drawbacks of the different experiments; - determine the degree to which the services that approve the proj- ects are sufficiently competent and coordinated; - make recommendations regarding a new strategy. 33. After this study, which was scheduled for completion on December 15, 1983, a new policy was to be defined and new projects identified. The coordination between the Ministries of Rural Development, Rural Works and Planning was also to be defined. -8- 34. The Togolese Government considered that in the longer term it would be necessary to improve the administration of agricultural research in order to develop production of food crops and specialized crops. In order to improve the coordination between national and regional projects, a research coordination unit was to be set up as of March 31, 1983. Promotion of Export Crops 35. The fall in coffee and cocoa prices spurred a fundamental review of the pricing policy concerning export crops. Togo had traditionally followed the practice of keeping producer prices very low, with a part of the difference between the export prices and those paid to producers being paid into the Treasury. These practices clearly resulted in farmers and growers having little incentive to increase production. 36. Being aware of these difficulties, the Togolese Government under- took to change the policy, committing itself to progressively raising pro- ducer prices while utilizing tax reform to replace the revenues lost by the payment of higher prices. 37. The first price increases, already introduced for the 1981/82 crop year (in CFAF/kg: cocoa, CFAF 220 to 225; coffee, CFAF 200 to 215; cotton, CFAF 60 to 65; palm kernels, CFAF 10 to 12) were to be continued and, if possible intensified for following years. 38. The Government also decided to progressively eliminate the subsi- dies on fertilizer for cotton, which it planned to do over a five-year period. 39. In addition, it was planned to set up a unit in OPAT (Office des Produits Agricoles du Togo) to be responsible for study and control of subsidies to agriculture. With the assistance of consultants, this unit was to prepare an in-depth study on the structure of agricultural prices and of subsidies. The study was to focus on the following points in par- tirular: - analysis of small farm production costs; - estimation of expenditures needed for development of the produc- tion and marketing of agricultural products; - study of possible export price movements based on world market prospects; - assessment, taking the preceding parameters into account, of Togo's comparative advantages. 40. The new OPAT unit was to submit its recommendations starting in June 1983 so that the Government would be able to fix the prices for the 1983/84 crop year. Food Crop Development 41. Why develop food crops? Until recently, food crops had been raised solely for subsistence purposes. However, the mediocre prospects for coffee and cocoa, coupled with the fact that the areas cuitable for these crops in Togo are small, militate in favor of developing food crops. Moreover, certain new factors have recently arisen: food deficits in cer- tain parts of the country, the growing urb&ization of Lomd and several other cities, and the proximity of densely populated countries that are becoming increasingly dependent on food imports. For the Government, the combination of all these factors provided Togo with the incentive to pro- mote itr traditional crops, not only for its own needs but also for export. 42. The Togolese Government accordingly advocated intensification and pursuit of thi second rural development project already under way in agree- ment with the Bank, with the accent being placed on training farmers in the new techniques. 43. Regarding the storage question, the intention was--without erod- ing the fundamental role played by private traders in the marketing of traditional crops--to spell out more precisely the role of TOGOGRAIN, the agency set up by the Government to regularize prices. In this connection, it was decided that TOGOGRAIN's security stocks should not exceed 15,000 tons between theia and 1985. At the same time, the small traders and co- operatives were to be encouraged to build up stocks for their own account that could be sold at market prices. Before the end of June 1983, the Governrent and the Bank were to determine the role to be assigned to stor- age activities. Finally, it was recommended that all measures taken to promote both export and food crops should be fully coordinated. Energy Policy 44. While continuing its energy conservation policy by keeping the selling price of imported petroleum products at a relatively high level, logo planned to develop its domestic resources with a view not only -. meeting its own needs but also to generating exports. This policy com- prised three components: (1) hydroelectricity, (2) petroleum exploration, and (3) reforestation and research to identify renewable resources. 1. Hydroelectricity 45. Given the cost of the thermal energy generated from imported petroleum products, construction of new thermal plants was not considered. Future electric power development was to be based on hydroelectric re- sources, in particular the Nangbeto project, studied in cooperation with Benin. 2. Petroleum Exploration 46. Although the offshore exploration carried out between 1979 and 1981 did not justify commercial exploitation, the Togolese Government was - 10 - anxious for these preliminary results to be re-examined with a view to de- termining whether it would be worth resuming exploration, with financial and technical assistance from the Bank. 3. Reforestation and Research into Renewp5le Energy Resources 47. The emphasis was to be twofold, with the help of new funding: - Reforestation. This activity was to be conducted in urban areas, with a view to supplying residents with wood, but also in rural areas as a means for halting desertification and providing the wood needed for construction and heating. - Research on Alternative Energy Sources (wind, solar, biomass) under the direction of the Association Togolaise pour la Recherche Scientifique and the Comitd Interministdriel Multiscientifique pour l'Application de la Technologie. Mining Policy 48. As for agriculture, the development policy for the mining sector was to pursue two goalst (1) to strengthen ongoing operations, and (2) to diversify and restructure the sector. 1. Strengthening Ongoing Operations 49. Efforts toward this goal focused primarily on clarifying relations between the Togolese Government and the Office Togolais des Phosphates (OTP). The Government acknowleaged that OTP, a profitable enterprise, had been used too often in the past to supply the Treasury's needs. In order to allow OTP as much autonomy as possible, while ensuring that at continue to help cover public expenditure, the Government undertook to clearly spell out its accounting and financial relationship with its top national enter- prise. 50. As of June 1, 1983, all proceeds from phosphates sales were to be individually entered in a special account which was to be audited regularly. 51. The proceeds were to be divided three wayst - the first portion to cover OTP's operating costs; - the second portion to be paid to the Treasury to augment other budget revenue; - the third and last portion, i.e., the balance, to be divided into two partes one to augment OTP's reserves and the other to con- stitate an additional payment to the Treasury. - 11 - 52. In any case, all amounts paid over by OTP were in future to be credited to the Budget, so that no payments would be made to other agen- cies. Relations between the State and OTP were to be reviewed tiriodically in light of the needs of the Treasury, on the one hand, and the position of the enterprise, on the other. The long-term objective was to give OTP full financial autonomy, with its payments to the State limited to company tax and dividends. 2. Diversification and Restructuring of the Mining Sector 53. In general terms, the Togolese Government undertook to step up mini,,g prospectit., and to explore new deposits with a view to diversifying dom,stic production. Moreover, since the feasibility study for a phosphor- ic acid plant had already reached a fairly advanced stage, the Government was anxious for the Bank to help it find foreign partners prepared to share the technical, financial and commercial risks of the operation. Industrial Policy 54. While recognizing that the chances of developing a domestic manu- facturing industry were poor, given the small national market and the un- certain prospects of the world market, the Government had nevertheless taken care to include the industrial sector in its declaration of economic policy. 55. The Government felt that expansion of Togo's industrial sector would dopend on the confidence that the country would be able to inspire in Togolese and foreign investors interested in utilizing local labor and other production factors. 56. The Government noted that it had already undertaken a study on small and medium enterprises and on the means for promoting their develop- ment. Following on from this study, it had undertaken to revise the Investment Code, the time frame for which together with institutional re- forms needed for SME promotion would be decided on in consultation with the Bank. Public Investment Policy 57. In view of the financial constraints which Togo would in any event have to contend with in the years ahead, the Government undertook to cut back the public investment program on the bas.s of the following three criteria: - Completion of projects offering an assured return and already committed; - Maintenance of investment level needed for smooth operation of existing plant. - 12 - - Priority for certain new projects financed on preferential terms by external lenders. To meet the requirements thus identified, public investment in 1983 was not to exceed CFAF 25 billion (for all Government and State enterprise invest- ments), CFAF 20 billion of which would be from external sources. 58. A Bank mission was to examine the investment program for 1984 and 1985 before the end of 1983. 59. The Togolese Government also set itself new strategies for the future. Priority was to be given to projects offering high rates of return and benefiting from concessional financing. As a general rule, a feasibil- ity study based on detailed technical analyses and realistic cost projec- tions was to be made for every project in excess of CFAF :00 million. Only projects with an economic rate of return of at least 10Z could be approved. 60. The following procedures were to be adopted for the implementa- tion of these new rules, beginnint in 1983: - establishment of semiannual cost projections by September 30 of each year for all ongoing projects; - preparation by the Ministries and other public and semipublic administrations of a statement of their semiannual investment needs, project by project. On the basis of these statements the Ministry of Planning was to prepare a project status report by November 30 of each year; - preparation of quarterly reports taking stock of project execu- tion, the amount of expenditure committed and the payments made (domestic and external resources). Quarterly meetings of the Ministries responsible were to be held to discuss these reports. C. Technical Assistance 61. The absence of coherent investment programming, the insufficiency of prior studies or investment options and the mediocre management of too mary public enterprises prompted the Government to include strengthening of the Ministry of Planning as one of the structural adjustment program prior- ities. 62. Strengthening in the form of technical assistance appeared all the more necessary since the limited staff of this Ministry had their hands too full with their day-to-day tasks so that they had neither the time nor for that matter the capacity to advise the Minister and to help him formu- late a comprehensive economic policy (for instance, it had not been possi- ble to give any thought to the interrelationships between the volume of investments, savings, the balance of payments and public finances). - 13 - 63. Admittedly, technical assistance was not unknown to the Togolese Administration in 197S. It was thanks to such assistance that the Ministry of Planning's Industry and Commerce Division already had an expatriate adviser in post. Two technical assistance projects, one financed by the United Nations and the other by the European Development Fund, also in- cluded provision for the assignment of two further consultants, the first-- a regional planning specialist--to strengthen the Directorate General of Planning and Development, and the second was to help establish a project study unit. 64. However, despite the4r value, these projects did not help to meet the real need, which was becoming increasingly clear, to formulate a new macroeconomic policy. 65. This was the purpose of the First Technical Assistance Credit, which was set in place in October 1979. It provided for the hiring of two economic advisers to the Ministry of Planning, each for a three-year period. 66. Senior Economic Adviser. His terms of reference were intended to cover an extremely vast area of responsibility: formulation of the Fourth Plan (1981-65), preparation of short and medium-term budget policy; examin- ing of issues relating to external public debt, monitoring of current ex- penditures and relationships between the Plan and the Budget; programming of investments and analysis of their impact on the economy. In short, this Senior Economic Adviser, who is shown in the organization chart as report- ing directly to the Minister of Planning, was to serve as the Minister's chief adviser for the formulation and establishment of Togo's economic and financial policy. 67. Senior Project Adviser. Also reporting directly to the Minister, this adviser was to be more particularly responsible for the economic and financial examination of new investment projects together with improvement of the economic and financial rate of return of ongoing projects. 68. In addition to these two senior advisers, who were themselves to be assisted by Togolese economists, the technical assistance credit also provided the Ministry of Planning with a budget for studies (a total of 130 consultant months), to facilitate the more detailed examination of certain sectors (e.g., the food crop pricing policy) or certain priority projects (oil refinery, steelworks, thermal plant, hotels). 69. A Second Technical Assistance Credit, larger than the previous one (US$3 million as opposed to US$2.2 million), was set in place in November 1982. Designed as an extension of the first, its object was to make technical assistance available to all the key ministries. 70. In the Ministry of Planning: - A Senior Economic Adviser, hired, like his predecessor, for a three-year period. He was to be more particularly responsible for economic policy formulation; - 14 - - An economic adviser specializing in public investment program- ming. Hired for two years, this consultant was, in addition to his investment programming tasks, to concentrate on debt manage- ment and devising a system of monthly macroeconomic indicators. 71. In the Ministry of Rural Development, the formation of two units: - a planning unit responsible for: - formulating a long-term rural development strategy; - studying the general problems facing the sector; - project preparation, supervision and evaluation. This unit was to receive the assistance of a rural planning expert for two years and of consultants for a total of twelve months. - a research coordination unit responsible for: - coordinating the various research programs; - intensifying contacts with international organizations. This unit was to receive the help of a research coordinator for 18 months and of consultants for six months. 72. In the Ministry of Industry and State Enterprises, the hiring of: - a cost accounting consultant for three months; - a financial analyst for 14 months; - a specialist in contrats-plans for 19 months; - and the availability of a consultancy budget (US$1.1 million) for the preparation of an investment plan and the carrying out of studies relating to the various industrial sectors. 73. The technical assistance credit also provided for the training and availability of Togolese counterparts. IV. IMPLEMENTATION OF THE STRUCTURAL ADJUSTMENT PROGRAM 74. The structural adjustment program included an extremely important initial component, namely financial adjustment. Before moving to consider the measures taken in the various economic sectors, it is accordingly appropriate to draw up a preliminary balance sheet of the financial results achieved. Apart from a few exceptions, this assessment will focus on the three years 1983, 1984 and 1985, us.Ing figures provided by the IMF. - 15 - Efforts to Reduce the Public Finance Deficit 75. Reduction of the public finance deficit was one of the primary aims of the financial stabilization plan. For an overview of public fi- nance in Togo one must look beyond just the State Budget operations alone. These operations have to be viewed in conjunction with those of the decen- tralized agencies (Caisse de Retraites du Togo, Centre Hospitalier Universitaire, Universit6 du Bdnin, Ecole Nationale d'Administration, Caisse Nationale de Sdcuritd Sociale), those with annexed budgets (Chemins de Fer du Togo) and those using special Treasury accounts. 76. In addition to investment expenditures, the Togolese Treasury must also cover external public debt service. To do this it credits the Socidtd Nationale d'Investissement with the amounts necessary for paying off arrears. It further serves as banker for local governments, the Caisse de Retraites and a large number of public enterprises. The Treasury has a current account with the Central Bank of West African States (BCEAO). BCEAO credit to the Togolese Treasury is governed by strict rules (in prin- ciple, the credit ceiling has to be less than 202 tax receipts for the previous year). 77. Finally, the two most important public corporations, i.e., OTP and OPAT, play a key role in the equilibrium or disequilibrium of public finances, depending on whether they make payments into the Treasury or, on the contrary, receive operating or investment subsidies from it. Since the accounts of these corporations are not yet fully transparent, it is not always easy, notes the IMF, to ascertain the real situation of Togo's pub- lic finances. 78. Since 1983 the links between Togo and the IMF have become closer. It has been possible to set up a program each year. For four years now these programs have been focused on the following main objectives: reduc- tion of public spending; preparation of a new Investment Code; strengthen- ing of the tax and customs administration; improvement of investment pro- gramming; better management of civil service personnel; improvement of enterprise accounting. 79. The efforts made, first in terms of revenue and then in terms of spending, will be examined before attempting to make a global assessment of deficit reduction efforts. Revenue 80. Fiscal revenue can be divided into two major categoriess (1) income tax, which between 1983 and 1985 accounted, on average, for 46Z of total tar revenue and (2) other taxes (mainly customs duties and taxes on commercial transactions) accounting for 54Z. 81. More than about half of the income tax, approximately, is paid by two large corporations, i.e., OTP and OPAT. However, the amounts paid by them are rather artificial in nature since the taxes that they pay are - 16 - calculated or, the basis of the needs of the State Budget instead of being based on their performance. Hence the income tax paid by OTP and OPAT showed a 26% increase in 1984 compared with 1983, for the purposes of off- setting a drop in customs revenue. (The amount of this payment, i.e., CFAF 19.6 billion, in 1984, remained at the same level in 1985.) The larger payments by OTP and OPAT in 1984 were made possible by an increase in their export e.nings. Other income tax payments were also slightly higher in 1984. 82. On the other hand, other revenue decreased in 1984, then recov- ered slightly in 1985. Its share in total tax revenue, which had been 48.5Z in 1982, was only 42.5Z in 1985. Customs duties in particular--on both imports and exports--were lower on account of the slowing of commer- cial activities in West Africa. Tax revenue 1980-85 (as percentage of total revenue) 1980 1981 1982 1983 1984 1985 Direct taxes OPAT payment 5.3 12.1 10.7 8.5 2.8 8.7 OTP payment 22.5 9.5 12.1 16.9 19.3 17.1 Income tax 15.4 17.1 18.8 19.0 20.8 20.9 Indirect taxes Taxes on commercial transactions 10.7 8.8 9.0 7.6 6.8 9.9 Import duties 38.6 50.6 48.5 44.0 40.0 41.3 Export duties 7.1 1.3 0.6 0.6 0.9 1.3 Other taxes 0.4 0.5 0.3 3.4 2.4 0.8 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Source: Togo - Country Economic Memorandum, June 1987. 83. Total tax revenue declined in 1983. then picked up in 1984 and 1985, thanks primarily to the sharp increase in OTP and OPAT payments. The tax ratio increased by almost one percentage point in three years. The tax revenue/GDP ratio, which was 23.5Z in 1982 and 1984, rose to 24.3? in 1985. This is one of the highest levels in Sub-Saharan Africa. 84. A new tax code was adopted at the end of 1983 and some of its provisions first began to be applied in 1984. This new code introduces some important but limited reforms, the chief ones being introduction of a single tax on the income of individuals; establishment of a specific tax on companies; rationalization of consumption taxes; establishment of a new tax on goods and services to replace the former turn over tax; introduction of new taxes (tax on company cars and real estate taxes). - 17 - 85. A 5Z national solidarity tax (imp8t de solidaritd) on private and public sector wages and salaries has been in effect since January 1, 1983. It was initially intended for one year only, but was maintained through 1985 and into 1986. This tax is withheld at source, which partly explains the improvement in tax revenue since 1983 and 1984. 86. Despite the progress made in improving tax administration, ap- plication of the new code is proving extremely slow. Its effective imple- mentation calls for tighter controls; however, tax verification is insuffi- cient and some new taxes, including taxes on real estate and tobacco, have not yet even been fixed. Expenditures 87. Ordinary and capital expenditures were trimmed appreciably be- tween 1980 and 1983. Then in 1984 capital expenditures began to mov. up again. 88. The most dramatic decision was the freezing of public sector wages and salaries, effective January 1, 1983, and also of new hirings and promotions. The 5% national solidarity tax also reduced real wages. It seems, however, that the actual cut was only 22, because of grossly inade- quate data on personnel numbers. This prompted the initiation of a study to improve personnel data and update staffing lists. 89. The freeze on wages and salaries was maintained until 1985. Hirings, which had been halted in 1983 and 1984, was resumed in 1985. The outcome was nevertheless a net reduction in personnel numbers because of the introduction, effective April 1, 1985, of compulsory retirement after 30 years in government service. By the end of 1985 it was estimated that the number of civil servants had fallen 4.8% compared with the end of 1983, which led to a 2.6Z reduction in personnel costs in 1984 and 1985 compared with 1982. 90. Public enterprises constitute another important area with consid- erable potential for cost cutting, given the fact that it is the Treasury that is called upon to finance at least a proportion of their investment expenditures and operating deficits. 91. The steps taken to rationalize and ease the burden imposed by the public enterprises will be examined in detail later. We will simply note here that, following along the lines of what had been done for civil ser- vants, it was decided, effective January 1, 1983, to bring public enter- prise wages and salaries in closer alignment with civil service salaries. 92. An inventory was made of the debts of the enterprises and a cer- tain number were audited. Despite these efforts, the real accounting posi- tion of the State enterprises is still unclear and this makes it difficult to evaluate the real impact of the public finance reforms carried out. The Treasury continues to pay the debts of enterprises operating at a deficit (includ.ng those that have been contracted out). It has, on the other - 18 - hand, begun to charge some rents (put at about CFAF 1 billion in 1985 on an annual basis). Direct subsidies to public enterprises were estimated at CFAF 0.4 billion in 1984. 93. Other ordinary expenditures (excluding external public debt) began to decline in 1983. In total it is estimated that in real terms the reduction in ordinary expenditures was 16% between 1983 and 1985. Their breakdown has shown the following trends since 1980: Ordinary Expenditures (1980-85) (percentage distribution) 1980 1981 1982 1983 1984 1985 Personnel costs 39.1 41.5 37.7 37.8 36.3 35.6 Subsidies and transfers 12.8 12.3 10.0 10.3 10.1 10.4 Interest on external debt 25.7 21.9 22.1 28.3 26.7 28.0 Other expenditures 22.4 24.3 30.2 23.6 26.9 26.0 TOTAL 100.0 100.0 100.00 100.0 100.0 100.0 Sources Togo - Country Economic Memorandum, June 1987. Outcome 94. The overall public finance deficit has displayed a downward trend since 1982. Excluding foreign grants, the percentage in relation to GDP has fallen one percentage point, fror 7.6% to 6.6?, while payment arrears on the external public debt have not grown since 1983. There was therefore a definite reduction in the deficit during the 1981-85 period. But this reduction is still small and, in any case, it falls short of the 3.2% tar- get, which had been set for 1983, as against 6.1? in 1982 (cf. page 6). Movement of the Public Finance Deficit (1980-85) (as percentage of GDP) 1980 1981 1982 1983 1984 1985 Taxes and subsidies 34.8 27.6 31.7 30.7 35.3 36.4 Taxes 33.3 26.0 29.9 27.5 30.2 31.5 Subsidies 1.5 1.6 1.8 3.2 5.1 4.9 Expenditures 40.8 33.2 38.3 35.3 37.5 38.1 Ordinary expenditures 24.9 - 23.0 27.5 26.9 26.1 24.8 Personnel 8.8 9.7 10.3 10.2 9.5 8.8 External debt interest 5.8 5.1 6.1 7.6 7.0 6.9 Other 10.3 8.2 11.1 9.1 9.6 9.1 Capital expenditures 15.9 10.2 10.8 8.4 11.4 13.3 Global deficit excluding grants -7.6 -7.2 -8.4 -7.7 -7.3 -6.6 Arrears 3.4 +1.5 +13.5 -6.2 -3.6 -1.1 Source: Togo - Country Economic Memorandum, June 1987. - 19 - 95. The precariousness of this modest improvement was underscored in 1986 when it was completely wiped out by a brusque and exceptional increase in certain expenditures. Not only did external public debt arrears in- crease but new items also appeared: CFAF 2 million for the Summit of Heads of State of French-speaking count-ies, CFAF 3 billion for construction of a new market in Lomd and CFAF 3.5 billion for purchase of a presidential airplane. The total public finance deficit as a percentage of GDP actually rose from 6.6Z in 1985 to 9.3Z in 1986. Movement in External Public Debt 96. Repayment of the external public debt was the second objective of the financial stabilization program. 97. An understanding of what has been done in this area calls for a description of the repayment procedures used in Togo and a--necessarily somewhat detailed--recapitulation of past external debt movements. Repayment Procedures 98. The Fonds National pour l'Amortissement de la Dette Publique (FNADF) was established in 1979 within the Socidt4 Nationale d'Investissement (SNI). This agency is responsible for cent alizing and processing data relating to public external public debt and investment guarantees. Besides compiling statistics, FNADF plays an important techni- cal role in rescheduling negotiations. Public lenders are required to provide it with all pertinent data to enable it to keep reliable statis- tics. The Five Reschedulings 99. Togo's external public debt increased sixfold between 1975 and 1980. In 1981 debt service amounted--before rescheduling--to CFAF 46.4 billion, i.e., the equivalent of 53Z of exports. 100. Since it was quite unable to find such large amounts, Togo had no alternative but to negotiate with its public creditors for rescheduling of its external debt. Between June 1979 and June 1985 five agreements were concludeC within the framework of the Paris Club. - The First Agreement (June 1979) provided for the rescheduling of 80% of the maturities falling due from April 6, 1979 to December 31, 1980 and the consolidation of arrears accumulated prior to April 5, 1979. In March 1980, a similar agreemert was signed with private creditors. - Tka Second Agreement (February 1981) provided for the reschedul- ing of 85% of Jebt service payments falling due in 1981, plus in addition rescheduling of 85% of debts falling due in 1982, sub- ject to IMF approval. However, since negotiations with the IMP - 20 - on the stabilization program were broken off, no rescheduling of the 1982 debt was approved on in 1981. (Only the Federal Republic of Germany and Italy agreed to rescheduling, as far as they were concerned). The Third Aareement (1983) provided for the rescheduling of 90Z of the arrears accumulated as at end 1982, payment being required in ten semi-annual installments, beginning January 1, 1984. Of the maturities falling due in 1983, 982 were effectively resched- uled; of those maturities falling due in '.983 but previously rescheduled, 802 were rescheduled. Private creditors also agreed to reschedule Togo's entire debt outstanding to them as of the end of March 1983, payment being required in 30 quarterly in- stallments beginning in 1983. In total, Togo obtained reschedul- ing of CFAF 34 billion in 1983. reducing its debt service ratio to 28? from 55% before rescheduling. At the same time CFAF 50 billion nf arrears were consolidated. Thanks to the repayments made by the Togolese Treasury, the backlog of external arrears, which amounted to CFAF 60 billion at the end of 1982, was vir- tually eliminated by the end of 1983. Togo also benefited in 1983 from the cancellation of part of its external public debt, when Canada, France and the Federal Republic of Gernany canceled CFAF 51 billion in debts owed to them following Togo's classifi- cation in late 1982 as a least developed country. The Fourth Agreement (June 1984) permitted the rescheduling of 95% of the debts (not previously rescheduled) falling due between January 1, 1984 and April 30, 1985, as well as 50Z of the princi- pal falling due during the period as a result of previous re- scheduling agreements. A tot?l amount of CFAF 23.4 billion was thus rescheduled. The Fifth Agreement (June 1985) provided for the rescheduling of 95? of not previously rescheduled debt falling between May 1, 1985 and April 30, 1986, with the remaining 5? being repayable in five annual installments, beginning September 1985. Previously scheduled debts, however, were to be repaid over a period of six years, after a five-year grace period. In all, the fifth agree- ment provided debt relief amounting to CFAF 8 billion for the last eight months of 1985 and CFAF 2.8 billion for the first four months of 1986, reducing the total debt burden to CFAF 13.7 bil- lion in 1985 from CFAF 38.7 billion before rescheduling. 101. Togo's external debt situation deteriotited somewhat following the closure in March 1984 of the Soci4td des Ciztnts de l'Afrique de l'Ouest (CIMAO), owned jointly by Togo, Ghana and COte d'Ivoire. In May 1985 the three governments signed an agreement to assume CIMAO's debts, Togo's share being estimated at CFAF 2 billion for arrears and CFAF 3 bil- lion for contractual debt service payable as of 1985. - 21 - Debt Service 102. Taking into account all the reschedulings that have taken place since 1981, Togo's debt service can be summarized as follows: In billions of CFAF and percentages 1981 1982 1983 1984 1985 Total Debt Service Before rescheduling 46.4 49.6 59.9 57.7 63.1 After rescheduling 21.5 47.5 30.6 34.8 49.4 Debt Service Ratio (%) Before rescheduling 52.7 45.2 54.5 50.9 53.8 After rescheduling 24.4 43.3 27.8 30.7 42.2 Source: IMF, Recent Economic .evelopments, 1986. 103. This table shows that since 1981, notwithstanding the reachedul- ings, debt service has not been significantly alleviated. Over the past two years it has even tended to move back up to the 1982 level. In 1982, despite the reschedulings, export earnings were not sufficient to permit any reduction in the debt service ratio. Total Debt 104. Total external public debt continued to rise, but at a much slow- er pace than prior to !980. Whereas it increased sixfold between 1975 and 1980--as already noted--it rose at an annual rate of 162 between 1980 and 1983. It stabilized in 1984 and dropped by 82 in 1985. However, the total amount in 1985 was still., at CFAF 294 billion, higher than it had been in 1982. The fact was that despite the reschedulings, export earnings did not allow any reduction in the debt service ratio. 105. The structure of the debt also changed. Since 1980 the Togolese Government has significantly reduced the proportion of commercial borrowing while increasing the proportion of borrowing on concessional terms. As a result, bilateral and multilateral loans now account for almost 902 of all borrowing (56% in the case of the forner and 332 in the case of the lat- ter), while loans from financial institutions represent no more than 82 and supplier credits have been almost completely repaid (with the exception of CIMAO creditors). - 22 - External Public Debt Outstanding 1981 1982 1983 1984 1985 Total (CFAF billions) 247 261 322 320 2V4 Breakdown (in Z) Bilateral loans 54.3 68.0 64.5 56.8 56.1 Multilateral loans 17.0 20.2 24.8 28.5 33.3 Financial institutions 24.9 9.9 9.4 9.7 7.6 Other (including supplier credits) 3.8 1.9 1.3 5.1 3.0 TOTAL 100.0 100.0 100.0 100.0 100.0 Source: IMF, Recent Economic Developments, 1936. Aaricultural Policy 106. It is not easy to measure the results of the new agricultural policy formulated under the structural adjustment program. This is primar- ily because the policy was couched in very general terms and its impact, if any, will only be seen in the long term. Then secondly, it is also due to the fact that the level of production is subject to sharp variations in climatic conditions which can very often completely reverse the expected impact of a change in policy. While acknowledging these difficulties, however, it is still possible to try to isolate certain elements of the agricultural policy applied since 1983: subsidies, producer prices, pro- duction levels of major crops and marketing results. The End of Subsidies? 107. Togo's commitment to bring about the gradual elimination of cer- tain subsidies does not appear to have always been honored. On the con- trary, these subsidies seem to have been maintained, at least in certain cases. This explains why pesticides and gasoline, for instance, continue to be sold to small farmers free of tax. Increase in Producer Prices 80181 81/82 82/83 83184 84185 85/86 Nominal producer price Coffee 200 215 235 290 315 365 Cocoa 220 225 235 275 300 330 Cotton 60 65 65 75 90 105 Real producer pricea Coffee 16.5 -3.3 -0.1 28.1 10.7 n.a. Cocoa -16.5 -7.9 -4.6 21.5 11.1 n.a. Cotton -16.5 -2.4 -8.7 19.8 22.1 n.a. a/ Deflated annual variation in the increase in consumer prices. - 23 - 108. It is evident from the figures that after being held low for a considerable time, producer prices were increased substantially beginning with the 83/84 season. In real terms the prices of coffee, cocoa and cotton (the three main crops) were raised by about 232 for the 83184 crop year and by 15% for the 84/85 crop year. Varying Trends in Production Levels 109. Production levels have varied considerably over time and have differed significantly among the various export crops in particular. Production (in thousands of metric tons) 1980/81 1981/82 1982183 1983/84 1984/85 1985/86 Coffee Purchases by OPAT ..90 9.40 6.00 2.70 9.00 9.40 Exports 10.00 9.20 6.30 3.50 9.00 9.00 Cocoa Purchases by OPAT 16.30 11.20 10.10 15.70 9.80 6.00 Exports 17.20 11.90 10.50 15.70 9.70 6.00 Cotton Purchases by OPAT 23.90 21.20 28.80 24.40 53.80 80.00 Exports 11.10 13.30 13.70 11.30 14.70 29.00 Coffee 110. After a very marked drop in 83/84, which was undoubtedly drought- related, coffee production rose vigorously in 84/85 and then remained at a high level the following year. Cocoa 111. Cocoa production followed the reverse trend to that of coffee. After an increase of more than 50Z in 83/84, OPAT purchases dropped by 40% during the following year and continued to decline in 85/86. This drop was partly due to unfavorable weather covditions but was also apparently linked to poor operating conditions. Unlike coffee, which is grown by farmers who own the land, cocoa is raised by farmers on land that does not belong to them. Relations between tenant farmers and landowners are ill-defined and often difficult. In addition, given the fact that cocoa plantations do not become fully productive for four or five years, farmers are reluctant to make such a long-term investment. Cotton 112. Cotton production increased significantly over a two-year period thanks to the investments of Socidt4 Togolaise du Coton (SOTOCO): OPAT's purchases reached 80,000 m.t. in 85/86. - 24 - 113. However, this marked increase caused some serious problems, since it exceeded available ginning capacity, which was only 50,000 m.t. Togolese cotton also had to compeute with the outputs of other countries in a market that was increasingly oversupplied, with the outcome that export prices for Togo's cotton fell by nearly 50Z between 1983/84 and 1985/86. Marketing Trends 114. Sales by OPAT have increased steadily since 1980, as have its purchases, a consequence of the raising of producer prices. Overall, OPAT's trading margins tended to increase between 1982/83 and 1984/85, with a downturn in 1985/86 resulting from the slump in cotton prices. In billions of CFAF 89L/.1 81L82 8213 1L83/84 8 5 85/86 Sales 22 20 20 27 28 30 Purchases 12 12 13 18 18 26 Trading profits 10 8 7 9 10 4 The results per product are as follows: In CFAF per kR 80/81 81/82 82/13 83/84 84/85 85/86 Coffee 254 282 401 656 571 418 Cocoa 186 225 258 593 580 458 Cotton 106 73 186 338 11 -29 115. Margins on coffee and cocoa fell between 1983/84 and 1985/86 by 36% and 23Z, respectively, under the dual impact of declining export prices and higher producer prices. Nevertheless, these margins are still substan- tials CFAF 418 for coffee and CFAF 458 for cocoa. 116. On the other hand, the cotton margin, after peaking in 1983/84, fell in 1984/85 and again even further, in 1985/86, when a loss of CFAF 29 per kg was posted. Industrial Disappointments Phosphates 117. The structural adjustment program based many of its hopes on development of the phosphate sector. PhosphatAs are Togo's principal source of wealth. Phosphate mining, the country's main industrial activ- ity, accounts for 102 of GDP, 40% of exports and almost one-fourth of tax receipts (see Part I: General Background). - 25 - 118. OPT, which runs the mining operations for the Government, has some of the lowest production costs in the world, thanks to the geological characteristics of the deposits and the plant's location, close to the port of Lomd. Despite their high profitability, Togo's phosphate exports are encountering difficulties due to the weakness of European demand. Medium- term prospects are discouraging. World price forecasts for phosphete and phosphate products are not very inspiring between now and 1995 and even beyond. In addition to the stagnation of demand, other more specific un- favorable factors have appeared. An ecological campaign emphasizing the high proportion of codnium, a radioantive substance, has contributed to the decline of Togo's phosphate market in western Europe, particularly in France, which normally takes some 25-30% of OTP's exports. 119. In view of all these difficulties, the p'osphoric acid project had to be abandoned. Cement 120. A brief comment should be offered on this sector, although it is not offic._lly included in the SAP. With the abandoning of the phosphoric acid project, the closure of Socidt4 des Ciments de l'Afrique de 1'Ouest (CIMA0) is the second unfortunate event since the start of the structural adjustment program. 121. CIMAO is a clinker plant, established in Togo, with which COte d'Ivoire and Ghana are also associated. Set up in 1980, it was forced to close down in April 1984, because of excessively high production costs. The three governments worked out arrangements for meeting the company's substantial debt obligations. At present there is no prospect of reopening the plant.4 122. The closure of this plant alone causid production for the entire secondary sector to decline by almost 10% in 1984. Energy 123. In contrast to the preceding sectors, energy showed 'acre promis- ing results. In addition to the conversion of SociAtd Togolaise d'Hydrocarbures (see below: Restructuring of the public enterprise sec- tor), the Nangbeto hydroelectric plant (also not officially included in the SAP) was taken into service in 1984. 124. At present, 90Z of the electricity consumed in Togo is imported frow. Ghana, while the remaining 10Z is produced by diesel generators. It is hoped that the new hydroelectric plant will reduce the import costs of electricity and will have a positive impact on the balance of payments. Nangbeto is intended to replace the electricity obtained from the Akosombo dam in Ghana. According to the latest estimates, it should meet approxi- mately 452 of Togo's consumption requirements. 4/ PPAR on CIMAD Regional Clinker Production Project, February 1988. - 26 - 125. In 1985, thanks to construction of the Nangbeto plant, the secondary sector regained its 1983 production level. Other Industrial Sectors 126. These have been affected by the difficulties of a number of pub- lic enterprises. With some of these closed (see below: Restructuring of the public enterprise sector), production in the manufacturing sector has declined since the start of the SAP (falling by approximately 6Z in 1984/85 alone). Better Control of Public Investments 127. The structural adjustment program was introduced when the Fourth Plan was already under way. Under the Plan, an overall expenttture of CFAF 250 billion was estimated for the five-year period 1981-85, a considerable increase over the preceding Plan's CFAF 207 billion. Recovery of the Public Investment Program 128. According to the initial provisional results, it seems that the execution ratio for the Fourth Plan was only 64Z. The program had been severely scaled down by 1983, and was then expanded again in 1984. From 1984 to 1986, within the framework of scheduling in the adjustment program, investment increased by an annual average of 32.71 in nominal terms. But despite this increase, most of which can be attributed to construction of the Nangbeto plant, investment reachei only half the 1979 nominal level, and in 1986 represented 14.5Z of GNP. Its New Content 129. The changes that have taken place have related not only to the volume but also to the content of the expenditure program. Development strategy now assigns priority to, on the one hand, rehabilitation and main- tenance of existing infrastructures, and on the other, to rural develop- ment. 130. From 1981 to 1985, infrastructure--including the Nangbeto project--accounted for 45.3% of total investment, compared with 44.5% for the period 1976-80. Within the infrastructure sector, emphasis shifted from tourism to transportation and energy. Rural development during the period 1981-85 represented 30.4Z of the total, compared with 7.2Z in 1976-80. 131. In contrast, investment in industry and trade represented only 9.1Z of total investment between 1981 and 1985, compared with 41.4% in 1976-80, thus reflecting the State's disengagement from the productive sector. It was not until 1986 that construction of the Lomd market, not part of the program, pushed the share of industry and trade up to 13.41, bringing that of the rural sector down to 28.2%. - 27 - Financing of the Proaram 132. Investment financing has also changed significantly. From 1981 to 1985, 26.32 of public investment expenditure was financed by domestic resources, compared with 38% during the period 1976-80. Since 1981, in line with the program, the Government has not berrowed or guaranteed any borrowing on commercial conditions, whereas this type of financing was the principal source of investment funding under the Third Plan. Approximately 75? of the public investment program now depends on the availability of grants or external credits granted on concessional terms. A Slight Improvement in Investment Programming, Selection and Monitoring Procedures 133. Under the pressure of financial constraints, investment program- ming and selection procedures have been improved somewhat. Since 1983, the Government has been endeavoring to apply three-year programming, in prin- ciple on a rolling basis, and some effort is now being made to take esti- mated rates of return into account. But the bulk of the work has still to be done. The latest economic report, "Togo Country Economic Memorandum' (June 1987), points up certain serious inadequacies: - Most projects are included in investment programs without ade- quate analysis of their economic and financial viability. - The project briefs system is not being used systematically or efficiently. - There are no procedures for consultation between the Ministry of Planning, with its numerous departments (Program Coordination, Planning, Control and Financing), and the technical ministries, which in any case are not always adequately staffed. - The Government provides only very partial data on project execu- tion. - Decision-making is much too centralized, each project requiring presidential approval. - In view of their extreme complexity, approval and procurement procedures need to be thoroughly revised. In conclusion, the June 1987 economic report recommends, while regretting that it has not been done already, that investments by the State be fully incorporated into the public investment plans, so that the volume and content of those investments can be examined and studied with the World Bank in light of economic policy objectives and estimated rates of return. - 28 - Restructuring of the Public Enterprise Sector 134. The program envisaged that the huge public enterprise sector, which had expanded out of all proportion during the 1960s and 1970s, would have to be considerably scaled down, thereby enabling the State to disen- gage itself and allowing viable enterprises to find ways of developing, thanks to improved management. The Government seems to have demonstrated great dynamism in implementing this extremely important component of struc- tural adjustment.5 135. At the end of 1982, a permanent commission was created to review the sector as a whole and to assist in revitalizing enterprises in diffi- culties. The establishment in April 1984, through secondment of part of the Ministry of Industry, of a new Ministry of State Enterprises, was a move designed to support intensification of the restructuring effort. The 70 or so public enterprises have now been divided into three groups: those that are to be closed; those that are to be privatized; and those that will remain in the public sector. Completion of the restructuring plan will probably take several years. However, according to the economic report (Togo Economic Memorandum, June 1987), the Government has already decided on the fate of 17 enterprisess - closurest 2 - leased to private operators: 5 6 - hotel management contracts: 5 - privatizeds 57 Setting Up of the Technical Assistance Program 136. The setting up of the technical assistance program mainly took the form of the assignment to three ministries (Planning and Industry, Rural Development, State Enterprises) of several experts and the undertak- ing of various studies. While the general spirit of the program was basi- cally respected, it does not seem that it was executed according to plan, in terms of either the length of time for which the technical assistants 5/ The international press has repeatedly drawn attention to this dynamic approach (in particular, see the article: In Africa, A Rush to Privatize, New York Times, July 30, 1987). 6/ SNS: Soci4t4 Nationale de Siddrurgie STHt Soci4td Togolaise d'Hydrocarbures SOTEXMAt Farm equipment manufacturing plant SOPROLAIT: Soci6td des Produits Laitiers du Togo SOTOCO Socidt4 Togolaise du Coton 7/ SOTOMA: Socidt4 Togolaise de Marbrerie et de Matdriaux SODETO: Socidtd Togolaise de Ddtergents ITT: Industrie Textile Togolaise TOGOTEX: Socidtd Togolaise de Textiles IOTOt Industrie des Olagineux du Togo - 29 - were assigned and/or the nature of tae functions they performed. In par- ticular, most of the tecnnical assistants had to have their assignments extende beyond 1985 and into 1986 and 1987. Technical Assistance to the Ministry of Planning 137. The first credit made it possible for two technical assistants to be assigned at the end of 1979. The Senior Economic Adviser was quickly recruited (September 1979), but it took three years (till September 1982) to find an Economic Adviser in project analysis, who then left after two years. This left the Senior Economic Adviser to function singlehandedly, so that, instead of being able to devote his time to his assigned task of macroeconomic policy formulation, he was soon entirely taken up by routine activities and became an "all-purpose" economist. Although his contract was extended beyond the original three years, there was a three-month gap before a successor was found. The successor, who had to "jump on the train when it was moving" and to make up for lost time, was obliged to respond, as he himself admitted in his report .(June 1985), to a large number of specific requests instead of concentrating on overall policy matters. After listing all the tasks performed in many fields by the technical ad- viser, the report concludes: "in view of the volume of work demanded by the functions described above, the adviser had to monitor rather than ac- tually perform some of the macroeconomic tasks originally specified in his terms of reference." Working Methods of the Technical Assistants 138. With the object, no doubt, of deriving maximum benefit from them, the technical assistants have been assigned to a large number of new admin- istrative units. The following have been created: At the Planning Ministry: - The Bureau des Conseillers Economiques (comprising three advisers). - The Comitd de Programmation et de Suivi des Investissements (set up in June 1983). - The Comitd-scdnario (set up at the end of 1983), responsible for the preparation and publicizing of medium-term economic fore- casts. At the Ministry of Rural Development: - The Cellule de Planification du DOveloppement Rural. - The Bureau de Coordination de la Recherche Agronomique. - The Comit4 de la Recherche Agronomique. - 30 - All these new units took a long time to set up. As stated in the technical assistants' report (June 1985), "it took some time for these units (....), separated from existing departments, to become fully mobilized." The nega- tive effects arising from the delay in, setting up the units were particu- larly harmful to the good performance of the technical assistants since one of the experts, a member of the Bureau des Conseillers Economiques, left his assignment a year before the date specified in his terms of reference. Not unt:l six months later was he replaced by another expert, who remained at his post for only eight months. Inadequate Qualifications of Certain Experts 139. The creation in Apri' 1984 of the new Ministry of State Enter- prises marked a major change. This new ministry was assigned some of the technical assistants initially allocated to the Ministry of Industry.8 However, it became necessary to revise their terms of reference, since their qualifications had apparently been very loosely defined. The contrat-plan expert was replaced after 18 months by a chartered accountant. The financial analyst--who had in any case been away from work for several months owing to ill health--was also replaced after 18 months by another expert more specialized in the area of assistance to enterprises. 140. In addition, all these false starts meant that one of the major aspects of technical assistance, i.e., counterpaxt training, could not take place. (This question will be examined in greater detail in Chapter VI of this report). V. INITIAL RESULTS 141. A review of initial program implementation has already brought to light a number of accomplishments. 142. To give a more complete view of the initial results obtained, we propose to use two methods: first, a detailed analytical sector review, and second, an overall macroeconomic review. A. Detailed Results by Sector 143. A general picture of the results by sector can be obtained by reproducing the summary presentation given in Annex III of the President's Report (Report P-3534 of April 26, 1983). Against the 22 "measures to be taken,' we have indicated the "measures actually taken': 8/ In April 1987, Industry and State Enterprises would once again come under the same ministry. - 31 - STRUCTURAL ADJUSTMENT PROGRAM Measures to be taken Measures actually taken Agriculture 1. Completion of studies on OPAT 1. The study was carried out by the prices. Louis Berger consulting firm in June 1983. During the following months, it led to the creation of a pricing unit at OPAT. 2. Increase in producer 2. The SAP included provision for prices. price increases. The increases were im- plemented, and represlent one of the very positive-results of the SAP. 3. Adoption of a food crop 3. This policy was negotiated and development and marketing policy. adopted in mid-1984. It was a condition for release of the second tranche. What is really needed is a clearcut decision on the role of TOGOGRAIN. It seems that the Bank and the Togolese Government do not see eye to eye on this point. 4. Establishment of coordination 4. A liaison committee was set mechanisms between the Ministry up, but proved ineffective. The two of Rural Development and the ministries were merged in March 1987, as Ministry of Rural Works. recommended by the Bank. 5. Creation of a food crop seed 5. No trace of implementation of this quality control unit and food crop measure could be found. It seems that coordinating committee. it duplicates the creation of the pricing unit at OPAT. Industry 6. Preparation of the Investment 6. Prepared--or rather revised, since a Code. code had been in existence since 1978 --in 1984, and adopted in January 1985. In addition, one of the technical assistants prepared a study on incentives for industrial investments. 7. Studies of the institutions 7. A study was carried out in 1986 by dealing with SMEs. the firm of SODI, on behalf of the Centre Togolaise des Investisseurs. But it will not be implemented before the third SAC. 9p Sees Investment Incentives for Industry, by Alice Galenson, Western Africa Projects Department, World Bank, April 1984. - 32 - 8. Identification of the most 8. This measure--much too theoretical-- promising sectors for private has not even been started on. investment. 9. Restoration of private investor 9. A good climate cannot be decreed. confidence. Confidence can be restored only as the res4lt of certain other specific measures. For the moment, Tog' is not looked upon unfavorably by foreign investors.10 State Enterprises 10. Closure or sale of TOGOROUTE. 10. Several entrepreneurs have been con- tacted (DIAMOIL, TOGOTRAINS, a Danish transport cooperative, etc.). For the time being, TOGOROUTE is surviving as best it can. 11. Decision on the possibility of 11. The two textile plants may be sold to a foreign group. 12. Completion of studies on STH 12. STH has been leased to Togo/Shell and SNS. and converted into a hydrocarbons depot. SNS has been successfully sold. SNS is often referred to as a prototype of successful rivatization in Togo and even in Africa.1 13. Study of SOTOMA's future. 13. SOTOMA has been sold to NORCEM, a Norwegian cement manufacturer, which is already a stockholder in the CIMTOGO clinker plant. 14. Implementation of a new hotel 14. Several initiatives have been taken policy. toward achieving a proper hotel policy (change in management of the large hotels, better pricing systems, etc.). However, a true "pilotf project for defining a con- sistent hotel policy still seems to be lacking. 10/ See: In Africa, A Rush to Privatize, New York Times, July 30, 1987. 11/ Ibid. - 33 - 15. Production of annual report 15/16. A sort of annual report was on State enterprises. produced in 1982, but none since then. It seems that the Bank prefers to have a 16. Improvement of programming and regular and complete annual audit on monitoring or revenues and each individual State enterprise, which expenditures of State enterprises, would be in addition to the auditors' annual financial report. Also, the dis- tribution of responsibilities within the Government has changed considerably. The State enterprises have successively come under four ministries: Ministry of Industry and State Enterprises, Department of Finance, Ministry of Finance and State Enterprises, and, once aon, Ministry of Industry and State Enter ises. The po- litical will to improve ministry struc- tures and reform public enterprises has played a very important role. Mining Production 17. Establishment of new financial 17. It does not seem that financial arrangements between OTP and the arrangements between the Government and government budget (leaving OTP OTP have been properly formalized. enough funds for its current Although relations have imp-.oved, there operations and investments, but at is every reason to believe that payments the same time providing for regular by OTP to the Togolese Treasury are the transfers to the Togolese subject of difficult debate every year. Treasury). The Bank has not received the financial data requested. 18. Completion of the phosphoric 18. The study concluded that this plant acid study and final decision. should not be constructed at this time. 19. Contacts with possible partners 19. Potential private partners have and preparation of a financing plan decided not to go ahead with the project. (assuming a positive decision). Energy 20. Energy assessment. 20. The assessment study was conducted in 1983 and published in 1985. It was part of a series of Bank studies on the energy problems of the developing countries and was thus not part of the SAP. 21. Decision on the Nangbeto 21. Positive decision. project. 22. Feasibility study for new oil 22. The Togolese Goverment has signed exploration activities, an agreement with the Canadian company SIMON for a resumption of exploration activities. The World Bank, for its part, seems very reluctant to finance further exploration. - 34 - 144. A comparison of measures contemplated and the steps actually taken suggests several commentst - Implementation has been only partials (out of a total of 22 measures, only 12 have been fully implemented: points 1, 2, 3, 4, 6, 7, 11, 12, 13, 18, 20, 21. - At the time of signing of the credit, some of the measures had already been taken, or were taken virtually there (points 1 and 15). - Several measures would in any case have been taken, even without any structural adjustment (points 18 and 20). - Others concern clarification of relations between the Togolese Government and its public enterprises, a major problem of "administrative organization" (points 4 and 17). B. Macroeconomic Results 145. The above analysis of results by sector can now be supplemented by a more general macroeconomic overview. 146. This calls for a preliminary comment. Since the start of the program, financial stabilization has been a basic and necessary condition of adjustment. The results in this area are, as we have seen above, still partial and somewhat precarious. They are nevertheless encouraging, if we disregard the "slippage" of certain public expenditures in 1986. To touch or. these briefly: at the end of 1985, the fiscal deficit and current ac- count deficit, both still high, had been brought down to 6.6% and 11.3?, respectively, of GNP. 147. It is in the light of these financial data that the economic and social results now should be analyzed. Adiustment and Economic Growth 148. After three consecutive years of marked contraction (-3.51 in 1981, -3.7? in 1982 and -3.4Z in 1983), the Togolese economy began to post growth again as of 1984 (+1.3% in 1984, +3.6% in 1985 and 3.1? in 1986). 149. These increases are mainly attributable to the rise in agricul- tural production, which, while chiefly the result of favorable climatic conditions, is also due to the incentive provided by higher producer prices. The increase in the volume of public investments has contributed to the growth of the secondaL-y sector, while the expansion of regional trade has promoted tertiary sector growth. - 35 - Social Consequences of Adiustment 150. These rather favorable results have not, however, helped to off- set the increase in population, Togo's demographic growth rate being at least 3.3Z. The result has been a slight decline in living starr.rds for the population as a whole. But it appears that it is mainly the urban dwellers who have borne the costs of adjustment. Public-sector wages, as we have seen, have been frozen since January 1983, and unemployment in the cities has been mounting, a result of the dwindling numbers of public-sec- tor employees and of the closing of several public enterprises. On the other hand, the major beneficiaries of the adjustment are definitely the rural inhabitants, who make up the poorest class and have benefited from the higher selling prices of their products. 151. The adjustment has had other unfavorable consequences in social terms. The reduction of budgetary expenditure has been very uneven for the different functions: Functional Classification of rurrent Expenditures (in billions of CFAF) 1983 1984 1985 (Prov.) - Ordinary civil expenditure 11.2 11.3 13.5 - Military expenditure 6.2 6.7 8.3 - Social expenditure education 15.1 15.0 15.2 health 4.2 4.0 4.0 other 2.9 3.0 3.0 Source: IMF, Recent Economic Developments, 1986, Table XXII. 152. From 1983 to 1985, whereas all social expenditure remained stable, ordinary civil expenditure increased by one-fifth and military expenditure by one-third. - 36 - VI. DIFFICULTIES IN PROGRAM PREPARATION AND EXECUTION A. The Role of the Bank Prep*ration of the Program and Collaboration With the IMF 153. It should be stated at the outset that the overall design of the structural adjustment program and of the first SAC was fundamentally sound. It was based on a perceptive analysis of Togo's situation and on a precise diagnosis of the crisis confronting the country at the end of the period of euphoria resulting from the phosphate boom. 154. Since Togo's major difficulties derived from overinvestment and deficiencies in the management of the country's public finances and extern- al accounts, it was perfectly justifiable that the adjustment process should initially center on the restoration of budgetary equilibrium and financial stabilization. Moreover, the macroeconomic and sectoral measures studied by the Bank's staff and negotiated with the Togolese authorities were, on the whole, completely appropriate. They were seen as the neces- sary conditions for a return to steady growth. However, while the theoret- ic concept of the program does not therefore give cause for criticism, some reservations can be expressed about its preparation and certain of its aspects. 155. Preparation of the Program Took a Long Time. Work on the program started in 1979 and did not end until 1983,,when IDA's Executive Directors approved the first credit. Preparation thus took almost four years. Dur- ing the entire period, the Bank was in a certain sense tagging along behind the IMF. It should certainly not be criticized for that. It is clear that the agreement between the Togolese Government and the IMF was a de facto prerequisite. And this agreement itself repeatedly had to await debt re- scheduling arrangements with the Paris Club. 156. It seems that the Bank and Fund did coordinate their efforts at the time of program identification. This satisfactory Bank/Fund coopera- tion also continued during execution and monitoring of the program. The two institutions sent out numerous missions. However, it is regrettable that these missions took place more in parallel than as truly joint ef- forts, and closer coordination would have been desirable when certain deli- cate situations arose. For instance, a Bank mission visited Lomd on December 6-13, 1981, following the review of the loan agreement by the Loan Committee on December 2, to work up the program with the Togolese authori- ties. But on arrival it learned that the preceding Fund mission had been unable to reach agreement on a stand-by arrangement. The Bank mission was then obliged to keep to generalities, reminding the Togolese authorities that the structural adjustment program first of all entailed financial recovery. But it could not go very much further. As mentioned in its report of January 8, 1982, "the unforeseen breaking off of negotiations between the Fund and Togo prevented the Togolese Government and the mission from holding detailed discussions on the structural adjustment program." - 37 - Monitoring of the Program and Observance of Conditions 157. Subject to what will be said below concerning technical assis- tance and the observance of deadlines, the implementation of the program has been carefully monitored by the Bank through numerous missions, whose reports give a fairly complete, if generally optimistic, view of difficul- ties encountered and successes obtained. 158. Did the credit have to be divided into two tranches, and what were the conditions for release of the second tranche? There is no doubt that it was perfectly justifiable to divide the credit into two, if only to ensure the commitment of the Togolese authorities. 159. Release of the second tranche was dependent on the following four conditions: (1) Decision to convert the oil refinery into a storage depot. (2) Preparation of an investment program for 1984/85. (3) Adoption of a medium-term pricing policy for food crops. (4) Adoption of a food crop marketing policy. These four conditions were not all of the same type, and could not all be observed at the same time. On April 17, 1984, the Bank mission's report con'luded that points 1 and 2 had been complied with, but that points 3 and 4 were still awaiting government decision. Three months later, on June 28, a second mission concluded that the four conditions had been met, and the release of the second tranche was authorized on July 10, 1984. The satis- factory progress of the program was later confirmed in a mission report dated March 29, 1985. 160. To the extent that points 3 and 4 were simply confirmation of the undertakings given by the Togolese Government one year earlier at the time of the credit application, the Bank was able to accept that these undertak- ings had been renewed. In actual fact, the new agricultural policy was already well advanced, as was preparation of the investment program. It is therefore regrettable that, in the process of determining compliance with the conditions, the Bank did not verify the extent to which such compliance was attributable to the different types of aid (studies, advice) furnished by the technical assistance personnel. In other words, the Bank did not seek to determine what might have happened in the absence of the technical assistance serviL '. With respect to point 2, while the Bank was able to ascertain that the investment program was satisfactory as to content, it could also have insisted on greater progress in investment programming. B. Problems Badly Handled 161. In addition to the deficiencies noted here, k-ertain other short- comings also call for a few comments. - 38 - Excessive Optimism 162. We wish to repeat that the structural adjustment program was theoretically well designed, and its execution was, overall, appropriately monitored. But it should also be pointed out that it was too ambitious, owing to the possibly excessive optimism of those who prepared it. 163. Optimism first of all rezarding the content, if not of the pro- gram itself, at least of the first structural adjustment credit. This is to some extent an "all-sector" credit (public finances, agriculture, en- ergy, industry, public enterprises, etc.). Nothing is left out. The proof is that the Second Structural Adjustment Credit for US$30 ftillion, approved in early 1985, is simply an extension of the first. It does not, for good reason, cover any new sectors. 164. To the extent that the efficiency of the measures to be taken in several sectors (in particular industry and public enterprises) depended on the execution of difficult studies, on improvement of the management meth- ods of the Togolese Government, and on external events, it would perhaps have been preferable to choose certain priority sectors for the first cred- it, even if it meant undertaking other activities within the framework of the second credit. However, it is difficult to make a categorical pro- nouncement on this matter. The program's promoters seem to have chosen to advance on a large number of fronts, in the hope of covering as broad an area as possible, this seeming feasible to them within the framework of an economy which is, all said and done, quite a small one. In their mind, this wide-ranging strategy was to be continued during the second and subse- quent credits. 165. Excessive Optimism as Regards Execution Times. Most of the mea- sures decided within the framework of the first credit were not fully im- plemented until early 1985, and the credit itself was not fully disbursed until February 1985, although these measures had been scheduled for execu- tion by the end of 1983. For certain measures (decision on the future of TOGOTEX, creation of the planning unit at the Ministry of Rural Develop- ment), the implementation date fixed was earlier than the date of signature of the creditt The report on execution of the Bank's first SAC (June 30, 1986) clearly and honestly admits the existence of this gap between esti- mates and actual executiont "The gap was in part the product of over-opti- mism on the part of the Bank" (para. 65). By way of example, the Bank considers in retrospect that it was not justifiable to make the release of the second tranche dependent on public investment programming for 1984/85. Not only did Togo have no experience in this area, but, in addition, the lessons learned from other West African countries bear witness to the dif- ficulty of effectively applying conditions of this type. However, it is fair to note that execution times were longer than expected owing both to external circumstances and to a certain lack of initial reaction on the part of the Togolese authorities. - 39 - 166. The over-optimism of the Bank staff did not go unnoticed by the institution's higher echelons during the project preparation period. This was why, it, a memorandum dated November 30, 1981, two days before the Loa, Committee meeting, a senior Vice President asked a number of questionp, including the following: "Is it realistic to expect that the oil refinery and steel mill will be liquidated, sold or leased to the private sector at the time of presentation of the loan to the Executive Directors?" "Is the timetable for introduction of the contrats-plans realis- tic, in view of the need to mobilize the technical assistance required?" 167. While approving the credit, the Loan Committee wisely insisted that, prior to its final approval by the Executive Directors, the Togolese Government give precise commitments on three points: higher producer prices, public investment programming, and restructuring of public enter- prises. Inadequate Coordination Between the SAC and the First Technical Assistance Credit 168. It has already been mentioned that the first technical assistance credit agreement was signed very early and that it covered the recruitment of two long-term experts. Only one of these was named at the time of sign- ing of the credit agreement, at the end ot 1979, which meant that the funds remained unused for a long time. Moreover, since the second adviser, who arrived in 1983 at the time of signing of the adjustment credit, was paid d:rectly by IDA, part of the technical assistance credit was used to fi- nance a larger number of studies than was originall.y planned. 169. The long time taken to prepare the program, with frequent delays- -as we have seen--resulting from the pioblems between the Togolese Govern- ment ax.d the IMF, should have been used to better appraise the real techni- cal assIstance requirements. Basically, the first technical assistance credit was premature. It would have been better to wait at least a year to eighteen months before signing it, especially since the Senior Economic Adviser, who arrived too early, right in the middle of the program prepara- tion period, found himselt forced by circumstances to effectively play the role of permanent World Bank representative. This started him off on the wrong foot vis-&-vis the Togolese authorities. It would undoubtedly have been preferable for the Bank not only to delay signing of the first tech- nical assistance credit but also to install a permanent representative in 1979/80, instead of waiting until the end of 1983. 170. In the circumstances, the Bank seems to some extent to have put the cart before the horse, proceeding to signing of a technical assistance credit before being sure of having the most appropriate technical assis- tance personnel available at the proper time. - 40 - Technical Assistance Problems 171. In addition tu the foregoing, technical assistance in Togo poses two joint problems: cooperation uith the Togolese Covernment and counter- part training. Cooperation With the Togolese Government 172. Technical assistance fulfills its function better the more close- ly it is integrated into the local government departments. Such integra- tion is difficult to achieve, since a good balance has to be struck between apparently contradictory attitudes and requirements. On the one hand, technical assistance staff often have to meet pressing needs, if only to prepare missions and reply to the Bank's questions. On the other hand, they have to strive constantly to be understood by the local officials and to ensure that the latter are being properly prepared to take over. The need for swift action often conflicts with the requirements of the instruc- tion process, which is of necessity slower. 173. These conflicts seem to have been very real in Togo. In his report, the Senior Economic Adviser makes a rather pessimistic comment on this point: "The absence of internal communication (particularly at the horizontal level), the absence of interministerial liaison, conflicts of skills and functions, uncertainty as to the role nf the different depart- ments and services, and the resultant paralysis are symptoms betraying a deep-seated dysfunction." These observations are similar to those that will now be made concerning the role and training of counterpart staff. Counterpart Training 174. The expert with responsibility for public investment programming expresses in his report an even more severe judgment than his colleague, when he says: "So far (by June 1985) there have been no direct and frank exchanges of views between the Togolese officials and the technical assis- tance personnel concerning the performance of their duties." The fact is that technical assistance staff tend to be criticized for failing to inte- grate themselves adequately into the local services, with, as a corollary, ,short-circuiting" of Togolese officials and a failure to disseminate knowledge and working methods. Similarly, the role of the counterparts remains ambiguous. Their position within the Administration is not suffi- ciently well defined; in vractice, they have no specific responsibilities beyond the work that the technical assistance officer to whom they are assigned chooses to give them. It seems that these difficulties, which are also found in many other African countries, have been particularly severe in Togo. Perhaps they have something to do with personal rivalries or animosities. But apart from personality questions, for which there can be no miracle remedy, it seems that the counterpart situation could be im- proved if a new direction were taken. Instead of the counterpart remaining entirely at the adviser's mercy, it would be preferable, at the time of his appointment, for him to receive something equivalent to terms of reference from the adviser. Knowing exactly what his minister expects of him, and - 41 - having clearly defined functions to fulfill, he would find himself in a more comfortable and more responsible position both vis-&-vis his techni- cal assistance colleague and vis-&-vis his own superiors. The evaluation of the results of his work would be less subject to argument, since it would be based on objective criteria. It seems that the Third Technical Assistance Credit signed in 1985 took these problems into account. Large Number of Studies 175. The two technical assistance credits made it possible to carry out a very large number of studies: a total of more than 50, of which 30 came under the first credit. The technical assistants' reports (June 1985), make partial reference to those studies, mentioning "the volume and diversity of the portfolio of studies financed': First Credit (a) Studies linked to development projects: - sample analyses for OTP - missions in favor of SOTOCO - GERSAR's activity within the SIO project - photointerpretation of Mono valley - cadaster study by technosynesis - mapping of B6 neighborhood (b) Sector studies - Togolese agriculture survey by DESA - FRIDA study on Togo's SMEs - hotel sector studies - parapublic sector studies - producer prices study (OPAT) (c) Studies of individual rehabilitation dossiers - textile sector studies - study of martle deposits and the investments required by SOTOMA - CIMAO study - OPAT diagnostic study - SNS study (d) Organization studies - proposed economic and financial management chart - computerization of equipment expenditures - 42 - Second Credit (a) Sector studier - rural development diagnostic study - contribution to formulation of the new Investment Code - industrial sector study - study of Togo's cities - health sector study - inventory of debts and claims of State enterprises (b) Studies linked to restructuring dossiers - SOPROLAIT diagnostic study - IOTO diagnostic study - reconstitution of TOGOGRAIN's accounts - ITP diagnostic study - study of STH conversion - SNS financial balance sheet - legal and accounting audit of ITT and TOGOTEX (c) Organization studies - CASEP computexization - microcomputer search - assistance for the Organization and Methods Bureau 176. Generally speaking, there is no reason to question the usefulness of the studies. It has been ou. past experience in many developing coun- tries that a lack of preliminary analysis has led to hasty and unfortunate investment decisions, so that the present wide variety of studies gives cause for satisfaction. Several of them have been useful to the implemen- tation of the reforms. But precisely because there are so many of them, they do pose a number of problems, in particular in a small country like Togo. - First of all, who chooses the subjects and topics to be studied? The risk is a dispersal of resources, a risk that increases in proportion to the amount of the funding earmarked for the studies. In other words, there is a danger that the various departments will apply for studies according to their needs, if not their whims, and that there will be no screening of applica- tions or prioritization of needs. For example, without denying their interest as such, was it really necessary to undertake a study on the health sector and another on Togo's cities? Do the cadastral and marping studies fit into an overall pattern? Were all these monographs justified by implementation of the struc- tural adjustment program? - 43- Secondly, it seems essential to ensure that the studies always represent a preliminary analysis and a Justification for action, instead of being, as they often are, an excuse for a 'wait and see" attitude. In this respect, the 1982-84 study on the market- ing of food products in Togo seems to have been very well de- signed, although it took many months to implement. Not only did it include a detailed review of the various State activities in this sector, but its conclusions included a proposal to the Government for a series of measures--open to question it is true- -but offering the dual advantage of simplicity and clarity. Thirdly, there is the problem of use of the studies. The mass of new documents--often very voluminous and complex--prepared over a very short period is likely to remain unused by a Government that does not itself always have the capacity to put it to a good use. To avoid this risk, certain precautions should be taken. For one thing, it seems essential that the Togolese officials should themselves define their needs and participate actively with the advisers in developing terms of reference. For another, it also seems useful to spell out very precisely the procedures for moni- toring studies and to enforce them rigorously, bringing the auth- ors of the studies into contact with the departments that will have to use them. Has There Been Adequate Cooperation with the Togolese Authorities? 177. Have the Togolese authorities really participated in the formula- tion of the program, and have they really felt they have been involved in its implementation? In its report on credit execution, the Bank seems to give a negative answer to this delicate question: "The adjustment process has not, as a general rule, been understood by the government representa- tives (...). In other words, structural adjustment was not a concept that was well accepted in Togo at the time of the first credit" (para. 68). In any case, this was hardly surprising in view of the atmosphere of crisis prevailing at the time. 178. The Bank attributes this situation to several causes that would also explain the implementation delays: excessive centralization in the decision-making process, excessive compartmentalization and fragmentation of responsibilities, inadequate horizontal integration. There is no doubt that all these reasons exist and that their importance should not be under- estimated. 179. However, we may wonder whether the Bank, rather than deploring them after the event, should not have tried to correct them when preparing and negotiating the program with the local authorities. In reality, the Bank has had to cope with serious institutional and administrative problems in Togo, and, in the circumstances, has not been able to obtain all the desired results. This gap is regrettable. Was it realistic, for example, to launch such an ambitious agricultural policy, and then to set up a - 44 - single Ministry of Rural Development/Ministry of Rural Works coordinating committee to implement it? The existence of five regional rural develop- ment directorates without adequate resources simply served to encourage the development companies (Soci6td Nationale pour la Rdnovation et le Ddveloppement de la Cacaoybre et la Cafdibre Togolaise, Socidtd Togolaise du Coton, Societd Nationale pour le Ddveloppement des Palmeraies et des Huileries, etc.) to obtain their own resources, and, consequently, to favor the "compartmentalization" and "fragmentation" denounced by the Bank. In the same way, would it not have been useful to clarify once and for all the respective responsibilities of the Ministry of Industry, the Ministry of Finance and the Ministry of State Enterprises before launching such an ambitious program to privatize public companies? The fact that those ministries' spheres of responsibility have been realigned at least three times since the program was launched attests to the instability of those institutions. VII. CONCLUSIONS AND RECOMMENDATIONS 180. Togo is one of the first West African countries to have received a Structural Adjustment Credit from IDA. This credit supported by two Technical Assistance Credits. These initial credits, granted in June 1983, June 1979 and May 1982, respectively, were supplemented by a Second Structural Adjustment Credit and a Third Technical Assistance Credit in June 1985. A Third Structural Adjustment Credit is being prepared. The review of the implementation of the program, which was limited to the years 1984 and 1995 plus a part of 198v (since all the figures for the latter year are not yet available) and which relates only to the First Structural Adjustment Credit and the two technical assistance credits, gives rise to a mixed overall evaluation. 181. The structural adjustment process officially undertaken in Togo since 1983 is a continuous process that has to be pursued on a long-term basis. Many of the measures included in the first credit will need years to implement. In the same way, the adjustment process started well before official signing of the first credit. 182. At the macroeconomic level, results are, for the moment, limited. Financial recovery remains a major priority. Despite some successes, in particular in the control of budgetary and extra-budgetary expenditure, the country's financial situation remains unstable. Limitation of the public finance deficit is still precarious, and the country's external indebted- ness is such that, despite repeated reschedulings, debt service will absorb more than one-third of export receipts over the next five years. 183. While a growth pattern has been reestablished, the rate of arowth is insufficient to offset population growth. Hence a general drop in liv- ing standards, accompanied by a new distribution of income by social cate- gory. - 45 - 184. These difficulties, attributable for the most part to external causes (falling phosphate prices, depreciation of the dollar, rising inter- est rates, etc.) should not obscure the fact that the structural adjustment proaram is based on a perceptive analysis of Togo's weaknesses and strengths. It contains a set of measures whose gradual implementation is a necessary prerequisite for the reestablishment of durable growth. 185. The content and implementation of the program have, however, been open to criticism on several points. The First Structural Adjustment Credit seemed both ambitious and optimistic. The timetable for execution of the reforms was particularly unrealistic. 186. The technical assistance was ill planned, in part premature and poorly coordinated with the other aspects of the program. Here again, measures included in the two Technical Assistance Credits erred on the side of over-optimism. 187. Overall, the Bank's approach seems to have been too rigid. It has lacked flexibility, applying set formulas, without seeking to adapt its approach sufficiently to Togo's specific situation. If, at the time of preparation of the program, the Bank had taken care to install a permanent representative, certain problems could certainly have been avoided. 188. Lastly, several highly important aspects of the adjustment process were inadequately considered and sometimes entirely ignored. Counterpart training and, in particular, the necessary institutional and structural reforms within the Togolese Government ran into difficulties. The lasting success of the adjustment will depend largely on the solutions offered to the problems of training of senior staff and operation of insti- tutions. Thus it would be desirable if, in future, this aspect of adjust- ment could be better incorporated by the Bank into the gradual implementa- tion of the adjustment program. - 47 - TOGO First Structural Adjustment Credit (Credits 1365-TO and 3-TO) and First and Second Technical Assistance Credits (Credits 930-TO and 1270-TO) Completion Report June 30, 1986 Western Africa Region Country Programs Department II Division D - 49 - TOGO First Structural Adiustment Credit (Credits 1365-TO and 3-TO) and First and Second Technical Assistance Credits (Credits 930-TO and 1270-TO) Completion Report 1. A First Structural Adjustment Credit to the Republic of Togo was signed by IDA and the Republic on June 17, 1983. The Credit was for SDR 36.9 million (US$40 million), of which half was provided out of regular IDA resources and the second half out of the IDA Special Fund. The Credit was approved by the Executive Directors on May 17, 1983, and became effective cn September 26, 1983. It represented less than 10 percent of estimated eligible Imports in 1983. The credit was released in two tranches of SDR 23.1 million (US$25 million) and SDR 13.8 million (US$15 million), the first made available upon credit effectiveness and the second upon Togo's meeting satisfactorily the conditions outlined in paragraph 12 below. The credit supported the first phase of Togo's structural adjustment program, set out in the Government's Statement of Development Policy of February 16, 1983, which was aimed at Improved public resource management and a restructuring of the economy towards renewed growth in the medium term. SAC I was complemented by a co-financing grant from the Government of the Netherlands in the amount of SDR 9.4 million (US$9.5 million), which was accorded in October, 1984. 2. SAC I was supported by a portion of the proceeds of a First Technical Assistance Credit for US$2.2 million signed June 22, 1979 (Credit 930-TO), and a follow-up Credit for SDR 3.1 million (US$3.5 million ) signed July 2, 1982 (Credit 1270-TO). The two credits financed the services of both long- and short-term advisors to assist the Government in formulating sound investment and public finance policies. The Government's financial recovery program was supported by the IMF through Stand By arrangements complementary to SAC I covering 1983184 and 1984/85 in amounts of SDR 21.4 million and SDR 19.0 million, respectively. 3. A second structural adjustment credit of SDR 28.1 million (US$27.8 million) was signed on June 24, 1985, in support of the second phase of Togo's adjustment process. I. Developments Leadint to the Structural Adiustment Program 4. For nearly a decade and a half following independence in 1960, Togo enjoyed financial stability and a strong 7 percent per annum average rate of growth. The economy was open and liberal, sustained by a poor though largely self-sufficient rural sector, a robust small-scale commercial sector and an efficient, foreign-owned phosphate mining - 50 - operation, its principal source of growth. Investment hovered around a range of 15 percent of GDP and was two-thirds financed by domestic savings. The external debt service ratio remained less than 5 percent. 5. A series of external *shocks" beginning late 1974 coupled with weak national economic management pushed Togo to financial collapse in the late 19700a and to economic decline by the early 1980's. Buoyed by a quadrupling of phosphate prices in late 1974-early 1975 and a consequent near doubling of its own budgetary revenue in 1975, the Government had embarked on an ambitious public investment program and creation of public enterprises. Its objectives were heavy industrialization and rapid modernization of the economy, with the State itself in the role of entrepreneur and financier. The phosphate boom was unfortunately short-lived: export prices Immediately began to fall back in late 1975, and the Government's phosphate-based receipts had dropped by 1976 to less than half their level at the peak of the boom. However, Togo*s phosphate boom was promptly followed by its coffee/cocoa boom, which temporarily enabled the Government to offset the reduction in its phosphate receipts. To support further its new spending objectives, the Government engaged in heavy external borrowing, increasingly on commercial terms. By 1978, the ratio of investment to GDP had climbed to an extraordinary 46 percent of GDP. But international coffee and cocoa prices as well as phosphate prices were by that time well below "boom* levels and, faced with sizable initial payments obligations on that part of its borrowing secured on commercial terms, Togo met only about 60 percent of its external debt payments due that year. Moreover, the incremental phosphate and coffee/cocoa receipts as well as the new foreign borrowing having been applied to a poorly prepared Investment program and creation of unviable public enterprises, and the public investment program itself cut back from its unsustainable levels of the late 197C's, the Togolese economy stagnated by 1980, then declined successively in 1981 and 1982. 6. The Government had begun to take remedial action in 1)79. Stand By arrangements in the upper credit tranches for 1979-80 and 1980-81 were negotiated with the INf. Debt reschedulings were correspondingly negotiated in 1979 and 1981 with the Paris Club and in 1980 with the London Club. The reschedulings nonetheless left service payments due in 1981 equivalent to nearly one-third of Government revenue, and payments arrears accumulated. Togo was further unable to meet IMF performance criteria under the second financial stabilization program, due largely to an unexpected drop in revenue from the phosphate mining operation OPT, and the Stand By arrangement was suspended in 1981. Negotiations for a new Stand By failed until November 1982, when agreement was reached with the IMF on a program for 1983-84. 1/ If IMF Stand-By arrangements are listed in Annex V. - 51 - 7. In view of Togo9a critical financial position, the Government's dialogue with the IMF was dominant up through at least 1981. The Bank's dialogue on macroeconomic and development policy issues evolved gradually. In April 1981 the Government made an initial formal request for a structural adjustment credit, to which the Bank responded with a series of preparatory missions extending up through late 1982. The extended period of preparation reflected by the Bank's continuing uncertainty as to the Government's relations with the IMF, with which agreement on broad macroeconomic policies was essential to proceeding with SAL preparation. More fundamentally, the Bank was concerned for the Government's readiness to address comprehensively the poor economic management and structural weaknesses of the economy which underlay the country's financial and economic difficulties. While acknowledging the severity of these difficulties, as it had in its initial April 1981 request for a structural adjustment operation, the Government only slowly recognized the scope and depth of the policy changes needed over the medium term to restore sustained financial viability and economic growth. II. SAL Objectives and Monitorable Actions 8. In its dialogue with Government in the 1981-82 period, the Bank identified three key areas in which comprehensive policy adjustment was needed to Improve public resource management and stimulate producer incentive in the private sectors 1) investment programing, 2) reduction and rationalization of the public enterprise sector and 3) agricultural pricing and marketing. The Bank recognized that the spectrum of policy adjustments implied was broad in view of the Government's technical and administrative capabilities. The breadth of issues to be addressed in the proposed structural adjustment program was considered logical inasmuch as it was possible for the Bank to finance only one or two specific projects a year in a small country such as Togo, and scope for supporting policy reform was therefore otherwise limited. Moreover, critical issues at the level of central economic management, such as investment programming, were suitably addressed only in the context of SAL. Towards meeting the question of the Government's technical capability in economic management, support provided under an initial technical assistance project had been extended and elaborated through the Second Technical Assistance Project (para. 21). 9. On its side the Government, recognizing the inadequacy of earlier remedial measures and reflecting an intensified dialogue with the Bank and IMF in the latter part of 1982, adopted at the end of the year and in early - 52 - 1983 a series of measures which constituted the first tangible steps of a structural adjustment program. - 10. In its February 1983 Statement of Development Policy to the Association, the Government outlined the principal objectives of the first phase of Its structural adjustment program, which can be summarized as follows: (i) accelerated rural development, largely in food crops for local consumption and export; (i) rehabilitation of state enterprises in association with the private sector; (iii) exploitation of comparative advantage in mining; (iv) promotion of industrial development through private investment in small- and medium-scale light manufacturing; and (v) Improved public investment programming and execution. 11. Monitorable actions, all of them envisaged to be undertaken by December 31, 1983, were established in each of the five above-mentioned areas. Reflecting the three key areas previously identified as being in need of comprehensive policy reform, the most Important of these monitorable actions concerned preparation of an investment program for 1984-85 (paras. 16-23), rationalization of the public enterprise sector (paras. 24-29), and agricultural producer prices and foodcrop marketing (paras. 30-44). 12. Explicit conditions for the release of the second tranche were: (1) adoption of an appropriate Investment Program for 1984 and 1985; (ii) start of implementation of decisions taken in consultation with 21 These measures included: (i) agreement with the IMF on a Stand By arrangement for 1983, (ii) preparation of a public investment program for 1983 acceptable to the Bank, (iII) closure of selected state enterprises and recruitment of consultants to review the viability of others, (iv) making operational the official agricultural price analysis and monitoring unit and (v) agreement with the Bank on the principle of full cost pricing of agricultural inputs and products and limitations on the activity of the State foodcrop marketing agency, TOGOGRAIN. - 53 - IDA regarding the proposed conversion <Y the oil refinery tanks into a privately operated regional fuel d4pot; (iii) adoption of an appropriate medium-term producer price policy for major export crops, including specific prie increases for coffee, cocoa and cotton during the 1983164. crop year; and (iv) adoption of an appropriate marketing policy for food crops. III. Proaress Under the Structural Adjustment Proaram A. Implementation of the Financial Recovery Program 13. A rigorous financial stabilization program established with the MF for 1983-84, agreement on which had been a pre-condition of the IDA-financed SAC I, placed primary emphasis on reduction of the budget deficit and the external current account deficit. The former was achieved *through a freeze, effective JIanuary 1st of the year, on recruitment, salaries and promotions of civil servants, a cut by 20 percent in capital spending and the imposition of a 5 percent National Solidarity Tax on all public and private sector salaries. As a result of these actions, the overall deficit was reduced in 1983 from 7.1 percent of GDP to 5.7 percent. At the same time, debt service due Paris Club creditors in 1983 was successfully rescheduled, bringing the overall deficit down to a more 1.1 percent of GDP (Annex I, Table 1). With fiscal austerity coupled with rescheduling and infusions of fresh funds under the IMF Stand By and IDA and CCCE structural adjustment credits, Togo met the entirety of it remainin, debt service obligations in 1983 as well as repaying a substantial share of domestic arrears. 14. A follow-up financial stabilization program for 1984-85 was also successfully implemented. Performance targets set under this second program were in fact exceeded: the budget deficit (before rescheduling) had been reduced to only 4.8 percent of GDP as of end-1984 and that of the balance of payments current account to less than 10 percent of GDP. These results were largely the product of the maintenance of strict limits on current expenditure as well as exceptional transfers from OTP, sizably increased grants from abroad and yet further rescheduling. 1/ The Government was consequently able to eliminate all remaining external debt 3/ A broad-scale domestic tax reform, enacted January 1, 1984, though implemented only a year later, had no appreciable impact on revenue in the 1984-85 program period. - 54 - payments arrears and to make further substantial reductions in domestic arrears. A third IMF program was adopted for the period commencing mid-1985, and the Paris Club again rescheduled Togo9s concurrent 1985-86 external debt service payments. 15. In spite of the very considerable success of the 1983-84 and 1984-85 programs, the depressive effects of austerity on the level of economic activity were reflected in a fall in GDP by 8 percent in real terms in 1983 and near stagnation in 1984, though adverse exogenous factors including a temporary spell of drought, weak earnings from phosphate rock, reductions in regional trade due to closure of the Nigerian and Ghanian borders and the halt in operations of the CIMAO cemeat clinker plant were also contributory. A/ These developments, particularly the border closures, significantly weakened the private sector, whose activity had previously provided Important stimulus to the economy despite the bankruptcy ef the public sector since 1978. The depressed economic climate of 1983 and 1984 notwithstanding, debt reacheduling together with fresh capital inflows, including accelerated disbursements under SAC I and continuing short term capital flows to the country, were sufficient to enable Togo to maintain an overall balance of payments surplus in both 1983 and 1984. B. Reformulation of the Public Investment Prosram and Investment Planning 16. The effective absence of investment programming had marked one of the most conspicuous failures in Togo's central economic management in the mid-1970's, contributing directly to the subsequent debt crisis and decline in output of the economy in the early 1980's. An overly ambitious five-year Development Plan (1981-85) had been discarded, and a 1981-82 Interim Plan had never become operative for lack of funding. The financial crisis from 1979 onwards had in fact forced the Government to cut public investment successively over a three-year period 1980-82 by 50 percent in nominal terms, from more than 30 percent of GDP in 1980 to about 12 percent in 1982. Nearly all investment was restricted to the completion of on-going projects. The public investment program for 1983, which the Bank had reviewed and found satisfactory in compliance with conditions of Board presentation of SAC I, was again part of the process of consolidating Al Drought-induced reductions in Togo's electricity supply from Ghana resulted in sharply increased energy costs in Togo and led to the closure in April 1984 of the IBRD-financed multinational cement clinker plant, CIMAO, and a marked reduction in clinker production and exports. CIMAO, confronted with excessive production costs and continuing financial difficulties, has remained closed since 1984. - 55 - I investment around a limited number of priority projects financed largely out of external resources on concessional terms. 17. Measures to improve investment programming set out ir. the Government's Statement of Development Policy included criteria for the evaluation and selection of projects and a detailed system of program monitoring to be put into effect in 1983. It was also envisaged that a system for monitoring overall economic and financial developments would be put into place the same year. Public investment programs for 1984 and 1985 acceptable to the Association were established as a condition of SAC I second tranche release. 18. In conjunction with the latter, an investment review mission of January 1984 reached agreement with the Government on the program for 1984, which it found satisfactory in terms of sectoral allocation and proposed financing, though expressing reservations as to a few larger projects proposed. Most importantly, the 1984 plan was found consistent with structural adjustment cbjectives in alloting fully one-third of expenditure to the agricultural sector, Government priority for which marked a significant departure from former policies. The mission also made recommendations on proposals for spending in 1985 as well as 1986, which were as yet in preliminary stages. (The Government had in late 1983 adopted tne principle of a three-year rolling investment program, the first to cover the 1984-86 period, in place of an originally envisaged two-year program.) The three-year program covering the 1985-87 period, as well as its macroeconomic framework (schima directeur) would be reviewed by the Bank later in 1984. 11 19. The January 1984 review mission further concluded that, while good progress had been registered towards stronger investment programming, considerable Improvement was yet needed in defining the medium-term macroeconomic framework of the investment program and in institutionalizing project preparation and monitoring procedures. 1/ The review mission noted 51 Review of the 1985-87 program was subsequently postponed until February 1985 and conducted in conjunction with conditions of Board presentation of SAC II. 6/ On the basis of information made available subsequent to the review mission on the execution of the investment plan for 1983, the Bank expressed strong concern for preparation and monitoring deficiencies evidenced by a severe shortfall in actual expenditure in the priority agricultural sector, 25 percent of total investment as against nearly 40 percent planned. Expenditure in the social sectors, on the other hand, had been higher than planned by a similar amount, chiefly due to the execution of projects not originally programmed. - 56 - in particular the absence of recurrent cost estimates and projected balance of payments implications of proposed investment as well as adequate substantiation for a number of undertakings in the project portfolio. 20. A major share of the resources provided under the First and Second Technical Assistance Projects were aimed at improved investment programmIv*. The First Project, which became effective in October, 1979, had been mounted in the aftermath of the commodity and investment booms, at a time when the Government increasingly recognized shortcomings in its economic planning in general and project preparation and analysis in particular. This First Technical Assistance Credit was designed to provide the Ministry of Planning with the services of a senior economic advisor (a secunded Bank staff member) as well as a senior project advisor for a three-year period. The Second Project, effective in November, 1982, expanded on the First and was explicitly designed to support the implementation of the structural adjustment program in each of the three key areas addressed -- investment programming, the public enterprise sector and agricultural policy. It provided for two resident advisors in the Ministry of Planning (a senior economic advisor and an investment programmer) as well as two resident advisors each in the State Secretariat for Industry and State Enterprises and the Ministry of Rural Development. Additionally, both Credits provided for short-term cons utants to supplement the services of the resident advisors. ! 21. In the area of investment programming, the elements of macroeconomic planning as well as project evaluation, selection and monitoring were introduced. Programming on a three-year rolling basis was adopted initially for the 1984-86 period and elaborated for 1985-87, the latter to serve, inter alia, a mid-1985 Donors' Round Table co-sponsored by UNDP and the Bank. A system of project monitoring was introduced on a quarterly basis, and by 1985 a significant measure of progress had been made in establishing the budgetary and balance of payments Implications of on-going and proposed investment. The collection, systematization and computerization of data which had initially been required to put into place 1 As the position of senior project advisor provided for under TA I was not filled until September 1982, this component of the Project ultimately served to complement the services financed under TA II. The position of Senior Economic Advisor in the Ministry of Planning was filled beginning mid-1983 by a second Bank staff member, this time financed as a grant under the Special Program of Technics! Assistance to IDA-eligible countries. El The role of the Technical Assistance projects in supporting the public enterprise and agricultural policy components of SAC I Is discussed in paragraphs 29 and 44, respectively. - 57 - these elements of investment programming constituted in itself an important achievement. 22. These steps towards systematic and comprehensive investment programming represented considerable progress given that economic planning in general and investment programming in particular were not established in Togo prior to SAC I. Not surprisingly, achievements were realized slowly. Concepts such as pluri-annual planning were entirely new and remained abstractions until their relevance, indeed their immediate necessity, was perceived, for example, as a pluri-annual plan was required for the Donors' Round Table of mid-1985. 23. Slow progress in establishing the elements of investment programming was also the result of the design of the First and Second Technical Assistance Projects themselves. The First Project, commencing 1979, was aimed not so much at establishing investment programing techniques as it was in providing policy advice to the Minister of Planning in responding to the immediate and severe economic and financial problems of the period. The Second Project, like the First, was primarily designed to meet critical manpower shortages and secondarily to meet training needs. According to the original design of the Second Project, the training objective was to be met through assignment to each resident advisor of one or two Togolese counterparts (homologues) in the Ministry of Planning as well as in the Ministries of Rural Development and State Enterprises. In practice, the counterparts, like the advisors themselves, tended to be absorbed by day-to-day problems rather than adhering to a structured medium-term work/training program as originally envisaged. Moreover, to the extent that training was effected, its impact tended to be diminished by frequent turnover among the Togolese staff. The short-comings of the counterpart system being eventually realized by both the Ministriea concerned and the Bank, it was agreed in mid-1984 that the advisors should be more closely integrated with the line directorates in the Ministries where they would work with and train a larger number of staff. This modification enabled a significant improvement in the training aspect of the technical assistance projects from late 1984 onwards. In general, however, a lack of emphasis on training remained a major weakness of these operations, one which was to demand close attention in the follow-up Third Technical Assistance Project, effective in October, 1985. - 58 - C. Rationalizinsg the Public Enterprise Sector 21 24. Public enterprises play a dominant role in the economy in agricultural marketing, industry and mining, transport and tourism, as well as in the provision of public services. The majority of them are characterized by weak Initial design, poor management, operating losses and excessive debt. In line with recommendations of a Bank mission of 1981 requested by the Government to examine the sector, the Government announced in December 1982 its intention to close six enterprises, denationalize a seventh and to review the sector as a whole with a view to its further rationalization. These measures, as mentioned earlier, constituted one of the initial iteps towards adoption in early 1983 of phase one of the structural adjustment program. 25. Under SAC I, the Government set the following as major actions to be taken with respect to at least 35 public enterprisess 1) decisions on closure or restructuring of several of the largest of these enterprises, and 2) adoption of a set of measures towards improved financial management in the sector, including the introduction of accounting and auditing systems, the preparation of management studies for selected enterprises, and the reformulation of strategy in the state-owned hotel sector, where sizable financial losses were incurred. 26. With respect to the closure or restructuring of enterprises, assessments as to the viability of ten of the larger enterprises were completed under SAC I, 1-1 and Che Government divested itself of operations of two of these in the course of SAC I execution. The operations of SNS, responsible for a small steel mill built in the late 1970's, were denationalized in October 1984 with the leasing of its rolling mill to a private Investor. The most difficult issue concerned STH, which had operated Togo's petroleum refinery, also built in the late 1970's and shut down in 1981 as unviable. The option of converting the tank facilities of the refinery into a privately operated transit storage depot was the object of a prolonged assessment under SAC I. A written confirmation from the Minister of Planning of a prior Government decision to make the conversion was accepted by the Bank in April 1984 as fulfillment of the condition of second tranche release, although actual Implementation of this decision was j1 The public enterprise sector in Togo comprises wholly State-owned companies as well as mixed State-private companies (socit;s mixtes). TOGOGRAIN, a key enterprise in the agricultural sector as well as OPAT, the export crop marketing board, are discussed in paras. 30-43. OTP, the phosphate mining operation, Is discussed in para. 46. jQI TOGOTEX, ITT, TOGOROUTE, SOTOHA, ITP, 10TO, SODETO, SOPROLAIT, SNS, STH. - 59 - delayed for further study of the modalities of conversion. Following the recommendations of the STH assessment, completed in October 1984, the Government signed a lease agreement with Shell-Togo for operation of the depot, effective March 1985. 27. Although originally scheduled to be undertaken by December 31, 1983, the actions envisaged in the public enterprise sector were largely delayed and only partially implemented under SAC I. This was the case not only with respect to the closure or restructuring of enterprises, but also with respect to measures such as the introduction of auditing and accounting systems designed to improve financial management throughout the sector as a whole. Although delayed, the latter measures were eventually undertaken in the course of SAC I for most of the enterprises targetted, with the exception of the hotel sector. In the case of the latter, progress in reformulating sector strategy to reverse financial losses was particularly slow, and the more important measures were taken up again under SAC II, despite a highly regarded diagnostic study financed under the Second Technical Assistance Project and finalized in mid-1984. 28. The causes for delayed action in the public enterprise sector . originated in many cases with delays in the completion of studies on which those actions were to be based, including the study of options for restructuring the petroleum refinery operation, STH. In other cases, decisions were delayed or were slow in being implemented for lack of adequate administrative mechanisms. In particular, the role of the central government vis-a-via the public enterprises was fragmented and poorly defined for a period of about two years, 1983-84, at which time its conduct was relegated to a Stace Secretariat for the Budget. Progress towards rationalizing the sector, including the hotels, was improved once authority was elevated to the ministerial level with the creation, in fact recreation, of the Ministry of State Enterprises in September 1984. Continuing delays in this component of the program nonetheless necessitated modifications throughout the timetable of actions to be taken in the public enterprise sector and led to the conclusion of SAC II preparation and appraisal missions beginning July 1984 that outstanding issues should comprise an important element of the second phase operation. 29. The slow progress in public enternrise reform under SAC I occured despite supporting resources made available under the First and Second Technical Assistance Projects. These resources included the services of two resident experts under the Second Project: one to assist the introduction of contrats ilans and another to assist in the definition of analytical accounting concepts and performance criteria in the sector. Additionally, the major share of short-term consultant's services financed under the Second Project was utilized in preparing the assessments of the viability of larger enterprises identified for possible closure or restructuring -?ll as the previously mentioned diagnosis of hotel sector operations. .. irovisions for consultants' services were utilized with comparative success, whereas the effectiveness of the resident experts was - 60 - minimal, due in part to their suitability for the assignments, but in a larger sense due to the uncertain role, noted earlier, of the Government via-i-vis the public enterprise sector. In particular, the Government did not have confidence in the contrat pla- as an instrument defining its relationship with the enterprises as initially proposed by the Bank. Similarly, the relatively weak mandate and management of the State Secretariat for Public Enterprisc, until replaced by a full-fledged Ministry in the second half of 1984, was reflected in a lack of integration of consultants and experts with technical staff as well as their lack of access to the State Secretary. D. Producer Incentive: Agricultural Pricing and Marketing 30. Policy reforms in the agricultural sector were central to the first phase of Togo's structural adjustment program. Under SAC I, an overall rural development strategy was outlined and significant progress was made towards establishing agricultural price and marketing policies to stimulate production of both export crops and foodcrops. 31. The design of a well-formulated rural development strategy was a pre-requisite for putting in place price and marketing policies adequate to ensure producer incentive in the sector and ultimately to raise rural incomes. The absence of a sector strategy prior to implementation of the structural adjustment program had long boen evidenced by severe shortfalls in planned public investment in the sector. The existence of two ministries charged with overseeing sector activity was similarly symptomatic, as were the uncoordinated interventions of a multiplicity of foreign donors in the sector. Longer term prospects for Togo's export crops (principally coffee, cotton and cocoa) had not been fully assessed at this time, nor had the potential for exportable surpluses of foodcrops. 32. Growth in export crop production had been inhibited, moreover, by a Government price policy aimed primarily at maximizing public sector revenue by maintaining a wide margin between prices paid producers and those obtained on the export market, despite negative effects on producer incentives, particularly with respect to maintaining coffee and cocoa plantations. The resulting financial surpluses of OPAT had furthermore been applied largely to investment outside the sector rather than towards its support. In place of competitive producer prices, the Government relied on the provision of extension services in some zones, bonuses for replanting and subsidized inputs to promote export crop production. 33. In the food crop subsector, low yields and poorly developed infrastructure, particularly storage and marketing, limited the realization of potential marketable surpluses. TOGOGRAIN, the state cereals marketing agency, whi -h in some years prior to the structural adjustment program had incurred lo.:ses on a large scale and had consequently seen its operations curtailed, was nonetheless charged with the national food crop ascurity 4 - 61 - stock from 1981 onwards and continued to play an active, though intermittant, role in food crop marketing. With the aim of ensuring low-cost supply of cereals in urban centers, TOGOGRAIN had intervened in the market by buying at artificially low prices and in periods had sold at prices below cost. To further ensure low-cost supply, the Government had Imposed in 1981 a ban on the export of food crops. 34. Among steps taken by the Government in late 1982 - early 1983, prior to Board presentation of SAC I, were agreements with the Bank on the principle of full cost pricing, notably with respect to fertilizer inputs and food crop sales, and on limiting the activity of TOGOGRAIN, specifically in maintaining a food security stock of no more than 15,000 tons of cereals. .11/ With respect to export crops, the Government had not yet formulated a medium-term producer price policy, but would do so following completion in June 1983 of an agricultural pricing study conducted by a new price analysis and monitoring unit in OPAT. 35. Reflecting measures set out in the Government's Statement of Development Policy of February 1983, policy actions to be monitored under SAC I were the followings 1) submission of the OPAT price study to Government for review; 2) adoption of a medium-term producer price policy for major export crops; 3) increases in producer prices for coffee, cocoa and cotton for the 1983/84 crop year; 4) a review of the operations of TOGOGRAIN; 5) adoption of full cost recovery prices for TOGOGRAIN sales; 6) adoption of food crop development and marketing policies, including liberalization of exports; and 7) priority to rural development in the 1984-85 public investment program. Items 2, 3 and 6 above were conditions of second tranche release. 36. In these undertakings, the Government was supported by services financed under both the First and Second Technical Assistance Projects, namely in formulating a rural development strategy, conducting the 11 Subsequently revised to 10,000 tons (para. 43). - 62 - agricultural pricing study and coordinating applied agricultural research (paragraph 44). 37. As in other components of this first phase of Togo's structural adjustment program, the pace at which policy action in the agricultural sector proceeded was slower than originally foreseen, though progress in this sector was comparatively strong. Whereas all principal actions had been envisaged for adoption prior to end-1983, the adoption of a rural sector strategy, medium-term export crop price policy and foodcrop development and marketing policy was achieved the first half of 1984. The delay in adopting the latter two policy directives was the principal cause for postponement of the release of the second tranche from an originally envisaged date of December 1983 to July 1984. Increases in producer prices for coffee and cocoa by an average of twenty percent were, however, announced on schedule. The price for cotton was not raised, as its level for the 1982/83 crop season was deemed adequate for the 1983184 season. The evolution of prices for the three key export crops is shown in Table 2, Annex I. 38. While the Government remained committed to making the agreed policy adjustments in the agricultural sector, Its objectives in the sector and consequently its definition of adjustments needed were loosely articulated through this initial phase of the structural adjustment program. The Government's overriding objective was eventual food self-sufficiency. Its Medium Term Rural Development Strategy further reflected a deep concern for slow growth in overall agricultural production and a need to stem the exodus of better-educated youth from the rural areas. The Strategy proposed to stimulate production through improvements in agricultural research and rural infrastructure and through expanded agricultural credit. Such measures would be supplemented by price and marketing policies under discussion with the Bank in the context of SAC I. A Bank mission of April-May 1984 to review the Government's Rural Development Strategy found its objectives narrowly defined, i.e. limited to food self-sufficiency, and its proposals for encouraging production to be generally lacking in operational content. At the same time, the mission concurred in the identification of a number of critical issues to be explored (research, credit, investment coordination, project design). It also acknowledged that a clear definition of objectives and strategy in the rural sector would require further analysis of traditional sector activity (e.g. farming methods, sub-sector interface) and the adequacy of existing physical infrastructure, extension services and farmer traiing. 39. Underlying the Government's relatively loose articulation of objectives in the rural sector and its difficulties in the timely adoption and implementation of adjustment measures lay issues of conflicting Government objectives for the economy as a whole. Two of these issues were dominant in the period of SAC I execution and would remain central to the Bank9e dialogue with Government through preparation and execution of SAC - 63 - * II. These issues concerned export crop producer prices and food crop . marketing policy. 40. The first Issue arose from the Government9a objective of ; expanding agricultural production and exports, specifically its commitment to raise producer prices for export crops, while at the same time attempting to meet continuing heavy financial demands of the Treasury and deficit reduction targets under the IMF stabilization programs in particular. In Its Statement of Development Policy, the Government had recognized that real farm incomes had been seriously eroded through the early 1980's and that sources of revenue alternative to OPAT would have to be sought to offset the implied upward adjustments in producer prices. Its medium-term price policy declaration adopted in May 1984 under SAC I, following completion of the OPAT price study referred to earlier, reaffirmed priority to farmer remuneration over Government revenue demands, though with qualifications concerning needs of the State to support rural development. -1 The "adequacy" of farmer remuneration and, secondly, the State's perceived financing needs remained loosely defined. The latter were specified as debt service previously incurred, future investment in the sector and creation of OPAT's own price stabilization fund. Following *.Bank objections to the latter, a compromise was reached in which the concept of a reserve fund was removed from the price policy declaration, while for its part the Bank accepted the need for OPAT to maintain stability in producer prices in the event of an abrupt and severe fall in prices on the world market, a prime Government concern. The broader Issue of farmer remuneration versus the financial needs of the State remained o3en beyond the Government'a declaration of intent in favor of the former. 41. In the event, producer price increases for coffee, cocoa and cotton for the 1983/84 and 1984/85 crop seasons (net of agreed gradual reductions in fertilizer subsidies to cotton producers) were sufficient to maintain farmer incomes in real terms, indeed to compensate partially for the erosion in real incomes incurred earlier. In this respect, the price increases effected in this first phase of the adjustment program met important social concerns of the Government. Further questions of income redistribution in favor of the rural sector and rural savings generation 121 Difinition des Pri-acipes de Base pour la Politique des Prix Agricoles et Questions Annexes. 131/ The Issue was to be defined in part by the Government's review of the conclusions and recommendations of a study of the management of OPAT, conducted under the public enterprise component of the structural adjustment program. The study was completed in June 1984 and eventually reviewed by the Government under SAC II. - 64 - had not been raised by the Government, nor were they.raised explicitly by the Bank under SAC I. 1 The producer price increases effected under SAC I also contributed to expanded production and exports, although the Government and the Bank have continued to difter as to the Impact of prices on production. In the case of tree crops, coffee and cocoa, production response to price changes has been low in Togo relative to that observed elsewhere in Africa owing in part to non-economic factors, notably patterns of land tenure and the availability of suitable plantation technology. Cotton production, on the other hand, has shown dramatic growth, although once again the relative impact of producer prices on production remains a matter of debate between the Government and the Bank (Annex I, Table 2). 151 42. The second broad issue surrounding the Government's declared objective under SAC I of expanded agricultural production and export was posed by its concurrent objective of ensuring food security. Togo's potential for achieving improved yields and thereby a sustained and sizable cereals surplus for export, particularly to the Nigerian market, was not fully exploited. Yet the food security imperative had led to the Government's 1981 ban on agricultural exports to which reference was made earlier. It is moreover recalled that, although cereals marketing in Togo is conducted essentially by private traders at unregulated prices, TOGOGRAIN had intervened intermittently in the market in an effort to ensure supply of low-cost cereals in urban centers. In the context of the structural adjustment program, however, the Government agreed to the principle of full cost recovery in setting TOGOGRAIN's selling prices beginning in 1983, to undertake a full review of TOGOGRAIN's operations and subsequently co adopt new food crop and marketing policies, notably policies aimed at market liberalization and export promotion. The latter measure was due to be taken in compliance with conditioas of second tranche release. 141 Such questions were raised under SAC II, however, which adopted rises in real farmer incomes as an objective to be addressed in part by further producer price increases. 15/ Under SAC I, the Government ensured farmer remuneration by setting prices adequate to cover production costs, though not adequate to induce farmers to invest in more capital intensive techniques, especially in plantation management, which the Bank views essential to maximizing production in Togo. This issue was elaborated under SAC II. Similarly, only under SAC II were questions as to the relative impact on production of price and non-price factors elaborated, the Bank emphasizing the former and the Government emphasizing the latter. - 65 - 43. In line with the objective of liberalizing foodcrop marketing, it was agreed between the Bank and Government that TOGOGRAIN's security stock of cereals would be maintained at a relatively modest level (revised) not to exceed 10,000 tons. This agreement was respected under SAC I. With regard to pricing, however, TOGOGRAIN continued to maintain its retail cereals prices such that the margin between its purchase and selling prices was not adequate to cover operating costs and, most importantly for the Bank, TOGOGRAIN's marketing practices constituted a disincentive to farmers, contrary to declared Government policy. The Bank's recommendations on TOGOGRAIN's operations were discussed with the Government in March 1984, following completion of the Government's review of the marketing board's operations, and again in June that year, prior to release of the second tranche. The discussions were not fully conclusive, though it was agreed that the pricing issue and other aspects of TOGOGRAIN's operations would be kept under review. The continued existence of TOGOGRAIN was accepted by the Bank, despite reservations as to its justification. On its side, the Government juqtified the agency's continued operation on the grounds of food security requirements, though acknowledging the disincentive effect of TOGOGRAIN's operations on producers. It was further argued by the Government that TOGOGRAIN's buying and selling practices were essential to stabilizing the cereals market. At the same time, it maintained that full cost recovery in food crop marketing by TOGOGRAIN would remain a longer term objective. 44. The role and effectiveness of support provided under the First and Second Technical Assistance Projects in the area of agricultural policy under SAC I was similar to that experienced in the area of public enterprise reform. The First Credit provided consultants' support to the OPAT Price Analysis and Monitoring Unit, while the Second Credit financed the services of two resident advisors in the Ministry of Rural Development, one to assist creation of a planning unit, the second to assist coordination of applied research. The short-term consultants' services were instrumental in making operational the OPAT Unit and in preparing the Government's medium-term price policy with respect to export crops. The planning unit established in the Ministry of Rural Development proved effective in analyzing project proposals in the agricultural sector in conjunction with formulation of the Government's new Rural Development Strategy. The effort to coordinate agricultural research faltered, however, due to a basic lack of coordination between the Ministry of Rural Development and other institutions engaged in the sector. Additionally, the work of the two resident advisors in agriculture tended to lack full integration with that of their appointed Togolese counterparts, as in other components of the program, although the overall effectiveness of the resident agricultural advisors was comparatively high. - 66 - E. The Mining and Liaht Industrial Sectors 45. In addition to policy actions in the three key areas of investment programming, the public enterprises and agricultural policy, the Government undertook aonitorable policy actions towards improved performance in the mining sector and towards the promotion of small- and medium-scale industry in the context of SAC I. 46. The first of these actions concerned OTP, the phosphate mining operation, which had been nationalized in early 1974 Imediately prior to the onset of the phosphate boom. In contrast with the public enterprise sector as a whole, OPT was efficiently managed and continued to generate sizable financial surpluses. These surpluses had been transferred annually to the Government largely for eatra-budgetary expenditure. In the financial crisis up throu6h the early 1980's, the Government's demand for these resources in the face of downturns in the world phosphate market threatened OTP's ability to meet its operating and reinvestment requirements. With assistance of consultants' services financed under the TAI Project, the Government undertook to examine OTP's overall financial requirements and to establish new financial arrangements with OTP by June 30, 1983, on the basis of this review, including Introduction of a detailed accounting system to lend transparency to the financial relations between itself and OTP. In conjunction with the latter, the Government further undurtook to budgetise fully its transfer receipts from OTP. The failure of OTP to submit promptly and fully to the Bank its reports on the transactions in question, as agreed with the Government at the outset of the structural adjustment program, evidenced the general lack of resolve for internal political and financial reasons with which the Government-OTP financial relationship was pursued under SAC I. 47. The promotion of small- and medium-scale industry was a further objective set out in the Government's Statement of Development Policy. Following the failure of most state enterprises in non-mining industrial activity, which at the time contributed less than 10 percent of GDP, the Government sought its expansion through the private sector. A thorough analysis of sector prospects had been conducted prior to implementation of SAC I with the support of the First Technical Assistance Credit. Under SAC I, and with the support of the Second Technical Assistance Credit, the Government prepared revisions to the Investment Code to extend its benefits to small businesses, reviewed the effectiveness of institutions dealing with the sector and initiated a study of the industrial incentive structure. Although the Government had originally comitted itself to establishing by June, 1983, in agreement with the Bank, a plan of action and timetable for finalizing a revised Investment Code and reform of the institutional framework of the sector, steps taken under SAC I remained limited to the study and review stages, and further steps were taken up in the context of SAC II. - 67 - IV. Release of the Second Tranche 48. It Is recalled that conditions for release of the second tranche were the following, in addition to overall satisfactory progress in implementing the structural adjustment program. (1) adoption of an appropriate Investment Progran for 1984 and 1985; (ii) a start on Implementation of decisions taken in consultation with IDA regarding the proposed conversion of the oil refinery tanks into a privately operated regional fuel depotl (ill) adoption of an appropriate medium-term pro4ucer price policy for major export crops, including specific price increases for coffee, cocoa and cotton during the 1983/84 crop year; and (1v) adoption of an appropriate marketing.policy for food crops. 49. Progress in meeting the conditions of second tranche release was reviewed by the SAC supervision mission of March-April, 1984, the conclusions of which were formally communicated to the Government in early June. A follow-up mission subsequently visited Togo in June 1984 to conclude the review. (1) The first condition, adoption of a public investment program for 1984-85, was considered to have been met a) following agreement on the 1984 program by the January 1984 Investment review mission, despite certain deficiencies in the program (pares. 18-19), and b) following agreement with the March-April 1984 Supervision mission on a timetable for remedying these deficiencies and reviewing the 1985 program in the context of the three-year 1985-87 plan. (i) The second condition, a start on implementing conversion of the STH refinery tanks, was considered to have been met by the Government's written confirmation of December 1983 of fta decision to proceed with the conversion, although actual implementation was delayed until end-1984 - early 1985 (para. 27). The latter was explained by a delay, in turn, in recruiting consultants to conduct a study of the modalities of conversion. (iii) The increases in producer prices for export crops for the 1983184 season which were called for under the third condition were announced on schedule, thus fulfilling this element of the condition. The remaining element of the third condition as well as the fourth condition, via. adoption of appropriate policies governing producer prices for export crops and food-crop marketing, had not been met as of the March-April 1984 supervision mission. However, following the Bank9s review of the - 68 - Government's policy directives in these two areas, which were adopted in May, as well as initiatives by the Resident Mission and discussions with Government by the follow-up mission of mid-June, the directives were accepted as satisfactory in fulfilling these two conditions. (tv) As for the general condition of overall satisfactory progress, this was regarded by the March-April 1984 supervision mission as having been fulfilled except that satisfactory progress had not been registered in rationalizing the OTP-Government financial relationship, as evidenced by the failure to submit complete and timely reports to the Bank on the realization of OTP surpluses (para. 46). In its written communication to the Government of June 1984, the Bank noted more broadly the delays incurred throughout implementation of the program. The Bank specified not only the failure to report on OTP-Government financial relations, but also delays in completing and synthesizing audits of the public enterprises, adopting a new strategy in the hotel sector and pursuing the study of incentives in the small- and medium-scale light industrial sector. A revised calendar was established for these and other actions throughout the program for their implementation, for the most part, in the second half of 1984. 50. The Government was advised on July 9, 1984, of the availability of the second tranche of the Credit (Annex II). V. Credit Administration 51. SAC I Procurement and Disbursement. Procurement of goods eligible for reimbursement under the SAC was made in accordance with Schedules 1 and 2 of the Credit Agreement and Bank procurement guide- lines. 16l The Credit was fully disbursed within seventeen months of effectiveness, September 26, 1983 (Annex III). The first tranche of SDR 23.1 million of this amount was disbursed within four months of effectiveness, SDR 21.9 million by end-1983, as against only about SDR 12 million projected prior to effectiveness. Withdrawal applications processed within the first two months of effectiveness in fact exceeded the amour.t of the first tranche by more than 30 percent. The expediency with which applications were processed reflected the efficiency and clear-cut 16] The use of ICB procedures for contracts of US$100,000 or more and disbursements against petroleum and foodstuff imports up to ceilings of US$10 million each are being verified by WA2 and LOA as of June 1986. - 69 - responsibility of a sole agent, the Central Bank (BCEAO-Lomi), enhanced by a successful visit to Abidjan in May 1983 by the representatives of the Central Bank and the Ministries of Planning and Finance to learn from experience gained in the execution of SAL I to the C;te d'Ivoire. With the first tranche fully disbursed as of January 1984, the overall ceiling on foodstuffs had nearly been reached, while the ceiling on petroleum products was more than two-thirds utilized. Following depletion of the first tranche, however, a period of over five months elapsed until release of the second tranche on July 9, 1984 (total SDR 13.8 million). Disbursement of the latter proceeded comparatively slowly through early February, 1985. The ceilings on foodstuffs and petroleum products were reached early in the period, both categories of goods being imported in sizable shipments, whereas smaller import invoices (though above a cut-off of $10,000) were relatively time-consuming to process. The Dutch grant of SDR 9.4 million supplementary to the IDA and SFA Credits was disbursed in December, 1984. 52. Use of SAC I Counterpart Funds. Local counterpart funds generated by the IDA and SFA Credits, while not earmarked for specified purposes, were utilized in accordance with Section 3.01 of the Credit Agreements, viz. to finance development-related expenditure and to reduce payment arrears. Some 60 percent of the counterpart funds were utilized for the latter purpose, while 40 percent were channelled to the public investment program for 1984 to meet about 15 percent of its overall financing requirements. 53. Technical Assistance Credits I and II. The First Credit, effective October 1979 and originally expected to be fully disbursed well before end-1983, was only three-quarters disbursed by that time owing to Governament delays in undertaking consultants' studies and to the fact that the post of resident Senior Project Advisor in the Ministry of Planning was not filled until September 1982. The Credit had been fully disbursed by end-1985 apart from a small balance subequently transferred to the Second TA Credit. Disbursements under the latter, though relatively slow in the early stages, have otherwise run at a pace approximating that originally envisaged, i.e. fully disbursed by June 1986. As of April 1986, the Credit was 80 percent disbursed, though fully committed. 1-1 A total of 67 man-months in resident technical assistance is being provided by Bank staff members in the framework of TA II under the Special Program of Technical Assistance to IDA-ellgble countries (para. 57). The savings consequently realized under the Project have been added to the allocation for consultants' studies, chiefly for the Ministry of Planning. Disbursement schedules of both the First and Second TA Credits appear in Annex III. 171 The pace of commitments (contract signings) is being confirmed by WA2 as of June 1986. - 70 - VI. The Role of the Bank 54. The 1982 Country Economic Hemorandum, an extensive 1981 study of Togo's public enterprise sector and preparatory work for the FY83 Second Cotton Project constituted the core of the Bank*s preparatory work for SAC 1. Discussions with Government on the CEM and public enterprise study in September 1981 served to identify principal elements of the structural adjustment program, and under Cotton II, first steps were taken towards reforms in agricultvrel pricing. Prior to and throughout the course of SAC I, t,e Bank further maintained close collaboration with the IMF in monitoring the financial stabilization program, the success of which was in turn an underlying condition of the success of SAC I itself. 55. The preparation and supervision of Bank projects in Togo offtred considerable support to SAC 1. In particular, Cotton II, which became effective August 1983, called for a phasing out of fertilizer subsidies and annual reviews of producer prices for cotton; it was thus expected to provide Important input to the more comprehensive review of agricultural price and subsidy policy undertaken in the context of SAC I. Additionally, the FY 81 Phosphate Engineering anJ Technical Assistance Credit supported the SAC I objective of export diversification and growth through its evaluation of an important phosphoric acid plant proposal, A8- and the FY82 Power Engineering and Technical Assistance Project and FY84 Nangbeto regional hydroelectric scheme supported the structural adjustment objective of expanded energy resources and reduced petroleum imports. While these projects lent direct support to structural adjustment objectives, they were recent at the time of SAC I and therefore tended to yield their technical findings and implementation experience in the course of SAC I executions more than in preparation for it. 56. At the same time, project experience in the agricultural sector in particular had been relatively extensives Cotton II was the Bank's fifth project in Togo designed to stimulate production and incomes in the cash crop and food crop sub-sectors. Despite this project experience, the Bank's knowledge of Togo's agricultural sector was fragmentary and generally lent little support to the preparation and early months of implementation of SAC 1. Ir spite of the experience of the FY79 Second 18/ The construction of a phosphoric acid plant was seen at the time of SAC I preparation as the most dramatic opportunity for diversifying and expanding exports. Including related infrastructure, project costs were estimated at US$500-600 million if executed in the mid-1980's, this cost being equivalent to about half of annual GDP. Given the size and cost of the project and continuing uncertainty in phosphate and fertilizer markets, the project has been postponed indefinitely. - 71 - Cocoa-Coffee Project and preparation of FY83 Cotton II, for example, the export potential of these cash crops, and of food crops in plantation zones, had not been fully assessed. Consequently, while SAC I set the exploitation of agricultural export potential as a critical objective, it did so without defining the dimensions of this potential. On the supply side, Cocoa-Coffee II was by 1983-84 already demonstrating highly favorable farmer response to non-price incentives in plantation rehabilitation and maintenance; price incentives were not addressed under the Project. Cotton II (FY83), being only the first Bank project in the sector to address price and subsidy policies, was nonetheless of recent experience, as noted above, and the impact of prices on production and incomes under the project had not yet been observed. 57. Moreover, Bank project experience in the agricultural sector had not been synthesized, with the result that the Bank's knowledge of the sector as a whole was weak with respect to sector-wide policies and institutions, land availability and sociological factors. Sector work in support of SAC I got undrway only in early 1984, well into tte SAC implementation period, and then only to review the Government's newly outlined Rural Development. Strategy. The programmed FY84 agricultural strategy review on which work had been initiated never reached Government discussion stage. Consequently the Bank could offer only limited assistance to the Government in elaborating its Rural Strategy in that period and acknowledged that further analysis was required for a clear definition of objectives and strategy in the sector (para. 38). 1l Fully active work on the agricultural sector got underway in mid-1984 in preparation of SAC II, however, and has since constituted a heavy component of the ESW program. 58. In the public enterprise sector, the Bank's 1981 study of sector issues had served as a comprehensive basis for the preparation of this component of SAC I. Yet some aspects of related work performed under TA I or action taken under SAC I should have been more thoroughly assessed by the Bank in advance. In particular, the notion that the contrat plan would serve as an effective instrument defining the Government-enterprises 19/ Need for in-depth analysis was also evident from UNDP, FED and USAID project experience. At the same time, a comprehensive study of agriculture sector issues had been prepared in the second half of 1983 by consultants (L. Berger et al) under the TA II Project. This study had &ddressed issues of prime concern to the Bank such as the inadequacy of prices paid to producers to enable savings and investment (para. 41, footnote 15). - 72 - relationship was a notion of the Bank, but one for which Government acceptance had not been secured. 20/ 59. Although in-house sector work was weak In its support of SAC I, it was strongly supplemented through the IDA-financed First and Second Technical Assistance Projects with respect to agriculture, phosphate mining, small- and medium-scale industry and the public enterprise sector, as noted throughout preceding sections of this Report. In addition to financing experts and consultants under the Projects, the Bank has provided to Togo the previously mentioned 67 man-months in Bank staff services in macro-economic management through the Special Program of Technical Assistance to IDA-eligible countries. 21/ 60. Supervision of SAC I was of mixed adequacy. As indicated by the schedule of supervision missions appearing in Annex IV, the frequency of supervision missions of SAC I and TA II, at six-month intervals, was pursued up through April 1984. Supervision of SAC I was subsequently weak. In particular, a supervision mission was not conducted in the second half of 1984, to which a number of monitorable actions had been postponed (par&. 49). Supervision was covered in part, however, in conjunction with -preparation of SAC II, for which missions were fielded beginning mid-1984. Additionally, the supervision function was served by the presence of a two-man Resident Mission in Lomi established in the second half of 1983, at the outset of SAC I. Supervision should have been enhanced by greater input from WAN Projects Department staff, who did not participate in the supervision missions or in the review of the 1984 public investment program. The latter exercise was further weakened by lack of follow-up on the execution of the 1984 investment program to measure achievements against objectives, a significant test of investment programming improvements following the disappointing outcome of the 1983 program (para. 19). 201 Additionally, though the Bank urged Government divestiture of SNS, the State steel mill, it did not follow through in examining the lease agreement through which this was achieved and which has since led to some questions as to its costs and benefits for Togo. The issue will be thoroughly examined by PPDPS in FY87. Ill Specifically, to fill the positions of Senior Economic Advisor (36 months) and Senior Project Advisor (4 months), both in the Minsitry of Planning, and the position of debt management advisor in the FNADP in the Ministry of Economy and Finance (27 months). A fourth Bank staff member filled the position of Senior Economic Advisor in the Ministry of Planning under TA 1; these services were financed under the project, rather than the IDA TA program. - 73 - VII. Summary and Conclusions 61. In this, the initial phase of its structural adjustment program supported by SAC I, Togo made significant progress towards reforming key economic policies and institutions as well as in stabilizing its public finance situation. Investment programming techniques were introduced, a number of uneconomic state enterprises were closed, and producer prices for major export crops were raised sufficiently to recover partially the price-related losses in real incomes incurred in the rural sector through the early 1980's. More fundamentally, foundations were laid for restruccuring the economy: a re-examination of the public enterprise sector and measures towards its rationalization and the adoption a rural development strategy, medium-term export crop price policy and principles to be applied in foodcrop marketing. 62. Taken together, the First and Second Technical Assistance Credits companion to SAC I provided moderately successful support for the program, though performance varied among the three key components of the adjustment program to which this support was applied and, as between the effectiveness of resident advisors and short-term consultants concerned with public Onteprise reform and agrIcultural policy. 63. Although progress under SAC I was satisfactory, its pace was well below the Bank's expectations at the outset of the program as was its projected economic impact. At the time the program was adopted, early 1983, overall growth of the economy was projected to average 5-6 percent per annum in the 1986-90 period. By mid-1984, approximately half way through execution of SAC I, projected growth 1986-90 was revised downward to 3.0 percent per annum, modestly below the originally projected rate *without" SAC and significantly below the forecast rate of population growth of 3.3 percent a year. The downward revisions reflected in part the generally depressed economic climate of 1984 and increasing recognition of the need for, and impact of, continued financial restraint over the remainder of the decade. Debt service, for example, even after rescheduling, would demand as much as one-third of export earnings and 35 percent of Government revenue in the latter 1980's. 64. The downward revisions of the economic outlook also reflected, with the benefit of a year's experience under SAC I, a more realistic assessment of the pace at which policy snd institutional reforms could be Implemented in Togo. While most of the monitorable actions undertaken in tne context of SAC I were completed or substantiolly advanced by the time the Credit had been fully disbursed, February 198-, all of these actions had originally been envisaged to be taken by end-1983. The gap between envisaged and actual rates of implementation of SAC I was the product of several factors, some foreseeable and others more di.fficult to anticipate. 65. The gap was in part the product of over-optimism on the part of the Bank. The expectation that, for example, the public investment program - 74 - for two successive years, 1984-85, (a condition of second tranche release) could be fully prepared for Bank review prior to the end of the preceding year, i.e. by end-1983, ran counter to experience throughout the Western Africa Region, particularly in a case such as that of Togo where viable Investment programming had not previously been practiced. The First and Second Technical Assistance Projects though relied upon to enhance Investment programming capability, could be of only limited success towards that objective within the period of SAC I execution. The First Project was by design aimed at providing policy advice at the ministerial level rather than training at the technical level. Moreover, that component of the First Project intended to strengthen project analysis, the weakest link in Togo's investment programing capacity, had not been activated for three years following effectiveness in late 1979 owing to failure to identify a suitable candidate for one of the two positions financed under the Project. While better designed on the whole, the Second Project was weak in its training aspects and in any event, having become effective only in November 1982, was too recent to have had a significant impact on investment programming before 1985. 22/ 66. The gap between envisaged and actual rates of Implementation of SAC I also resulted from limitations in administrative capacity on the Togolese side. The decision-making process in the Togolese administration is highly centralized, while executive responsibilities are compartmentalized and in cases fragmented. Decision-making authority is heavily centralized in the Presidency, not only with regard to broad policy directives, but also day-to-day administrative matters as routine as the approval of consultancy contracts under the technical assistance programs. On the other hand, horizontal integration within and among institutions responsible for executing decisions, once taken, are inadequate to ensure that these decisions are translated efficiently into concrete action. The inability under SAC I to coordinate agricultural research among institutions in the rural sector is illustrative. Difficulties encountered in integrating technical assistance personnel in the administrative apparatus, are more broadly illustrative. While the Togolese administration is by no means unique in Western Africa in the vertical thrust of Its structure and lack of horizontal integration in in its organization, the degree to which it is so characterized was, and remains, a major factor in the pace of implementing the structural adjustment program. 12/ Preparation of a public investment program acceptable to the Bank for 1985 (as well as for 1984) had been set as a condition of secozd tranche release of SAC I. The 1985 program was eventually prepared and reviewed in February 1985 as a condition of Board presentation of SAC II. - 75 - 67. In assessing achievements under SAC I, it is important to recall that Togo was the first IDA-only country in the Western Africa Region to undergo a Bank-supported structural adjustment program. Even within a Region characterized by low incomes, slow growth and heavy indebtedness, Togo ranked 17th among 21 countries in terms of per capita income ($250 in 1984) and confronted one of the highest ratios in the Region (17th in 1984) of debt outstanding to export earnings. Und4r the circumstances, the Government's preoccupation was financial stabilization and in particular a resolution of the continuing debt crisis. The successful Implementation of . the stabilization programs of 1982-85 must therefore be seen not only as a major achievement of the period, but also as a fully integral part of the first phase of the Government's adjustment program supported by SAC I. 68. Beyond financial stabilization, achievements under SAC I were significant in terms of changes introduced in the policy environment. Policy orientations of long standing such as the build-up of the public enterprise sector were re-examined and in cases modified. To be sure, this re-examination was made in part out of financial Imperative. But it also reflected recognition on the part of the Government that past economic policies, even where supported by boom earning and borrowing, had not been effective in accelerating growth. The Government was therefore prepared in this initial phase of adjustment to undertake remedial *economic reform". The benefits of longer term, broader scale restructuring of the economy, much less the means of achieving them, were not clear. More specifically, the overall direction of the IDA-supported course of adjustment was not generally understood by Government officials, nor was the relationship of the components of SAC I. In short, "structural adjustment" as understood by the Bank was by no means a well established concept in Togo at the time of SAC I. 69. Given that SAC I represented a very early stage in Togo's adjustment process, the Government's readiness to re-examine Its economic policies could have been strengthened had the Bank presented the case for structural adjustment more actively. Supervision in particular could have been better employed as a continuing opportunity to develop the case for structural adjustment if, in addition to monitoring progress towards prescribed targets, the Bank had placed greater emphasis on a fully collaborative dialogue with the Government, for example in the formulation of agricultural policy and establishing a system for setting agricultuzal producer prices. Design and Implementation of SAC II, under which the same key issues were pursued and elaborated, would have been greatly facilitated. For the Bank, SAC I in Togo indeed represented an early experience in structural adjustment operations in low-income Western Africa which offers valuable guidance for the design of future Bank operations of its kind. For both the Bank and Togo, SAC I marked an important turning point in the country's economic policies and management and succeeded in laying the foundations of its on-going structural adjustment process. ANNEX I - 76 - Table 1 Page 1 of 2 ECONOMIC INDICATORS GROSS DOMESTIC PRODUCT Annual Rate of Growth (W) 1980 1981 1982 1983 1984 GDP 1.8 -3.3 -3.6 -5.3 -0.8 Primary Sector 2.9 0.2 -8.8 1.3 7.2 Secondary Sector -1.2 -15.5 2.9 -6.6 -11.3 (of which: mining) (3.3) (-23.4) (9.7) (-2.5) (-7.1) Tertiary Sector 2.7 0.8 -3.6 -7.8 -0.2 As a Percentage of GDP 1980 1984 Consumption 83.2 85.7 Gross Domestic 33.4 23.5 Investment Resource Balance -13.3 -6.1 BALANCE OF PAYMENTS As a Percentage of GDP 1980 1981 1982 1983 1984 Exports incl. NFS 48.7 39.5 41.0 37.1 41.6 Imports incl. NFS -62.0 -55.0 -66.0 -45.7 -47.7 Resource Gap -13.3 -15.4 -14.0 -8.6 -6.1 Net Factor Services -3.4 -0.5 -3.6 -7.7 -7.2 Net Transfers 3.3 3.1 3.3 3.2 3.6 Current Account Balance -13.5 -12.9 -14.3 -13.0 -9.7 Net Capital Inflow 14.7 22.2 18.6 15.0 15.3 Overall Balance 1.2 9.3 4.3 2.0 5.6 External Public Debt 1984 1/ Disbursed Outstanding as % GDP 119.4 Service as Z Exports incl. NFS 31.2 1/ After rescheduling. ANNEX I 77 - Table 1 Page 2 of 2 ECONOMIC INDICATORS GOVERNMENT FINANCIAL OPERATIONS CFA Billions 1982 1983 1984 Rcvenue and Grants 84.8 86.0 103.6 Revenue 79.9 77.4 88.6 of which: OTP (13.9) (15.3) (20.0) OPAT (7.0) (5.2) (6.6) Grants 4.9 8.6 15.0 Exienditure and Net Lending 11 87.0 78.0 89.5 Current Expenditure 57.7 54.4 56.1 Capital Expenditure 29.2 23.3 33.4 Deficit before Debt Interest and Amortization -2.2 8.3 14.1 External Debt Service (p+i) scheduled -49.7 -53.6 -55.1 Overall Deficit -51.9 -45.3 -41.0 Financins Change in Arrears (- = reduction) 36.5 -17.4 -10.6 External Debt Rescheduling 2.1 36.2 23.4 Domestic Financing 3.3 3.7 6.1 External Borrowing 10.0 22.8 22.1 of which: SAC I/II (-) (9.5) (6.4) Memorandum Items As a Percentage of GDP Revenue 29.6 27.5 30.4 Current Expenditure 21.4 19.3 19.2 Capital Expenditure 10.8 8.2 11.4 Overall Deficit before Debt Rescheduling 19.2 16.1 14.1 after Debt Rescheduling 18.5 3.2- 6.0 As a Percentage of Revenue External Debt Service Scheduled 66.2 69.3 62.2 After Rescheduling 59.6 22.3 35.8 1/ Before debt interest and amortization. T000 MAJOR CASH CRlPS Evolution of Prices 1978/79-.985/86 1t2z tlLe 1S1 maes e.as ag Al 9l82143 coffee FOB Price (CAF/kg.) 671 639 541 622 770 956 850 x030 Nominal Producer Price (CFAF/kg.) 180 200 200 215 235 290 315 365 Producer Price/FOB Price 27% 31% 37% 35% 31% 30% 37% 35% Real Producer Price (CFAF/kg.) II 244 241 200 179 185 208 225 241 Indices (1978/79 - 100) Nominal Producer Price 100.0 111.1 111.1 119.4 130.6 161.1 175.0 202.8 Real Producer Price 100.0 98.8 82.0 73.4 75.8 85.2 92.2 98.8 Production 100.0 170.5 145.9 150.8 101.3 41.0 165.6 167.2 FOB Price (CFAP/kg.) 758 568 478 542 592 869 800 910 G Nominal Producer Price (CPAP/kg.) 200 200 220 225 235 275 300 330 1 Producer Price/FOB Price 26% 35% 46% 42% 40% 32% 38% 36% Real Producer Price (CFAF/kg.) 1/ 271 242 220 188 185 197 214 218 Indices (1978/79 - 100) Nominal Producer Price 100.0 100.0 110.0 112.5 117.5 137.5 150.0 165.0 Real Producer Price 100.0 89.2 81.2 69.4 68.3 72.7 79.0 80.4 Production 100.0 127.9 133.6 90.2 86.1 127.0 80.3 45.1 mla- FOB Price (CFAF/kg.) 217 278 330 400 408 553 650 340 Nominal Producer Price (CFAF/kg.) 60 60 60 65 65 75 90 105 Producer Price/FOB Price 1/ 69% 54% 45% 41% 40% 34% 35% 77% Real Producer Price (CFAP/kg.) a/ 82 73 60 54 51 54 64 69 Indices (1978/79 = 100) Nominal Producer Price 100.0 100.0 100.0 108.3 108.3 125.0 150.0 175.0 Real Producer Price 100.0 89.0 73.2 65.9 62.2 65.5 78.0 84.1 Production 100.0 159.1 174.0 166.9 226.8 195.3 429.1 472.4 1/ Drought year, though relatively favorable to cocoa production. I/ Based on CPI, Togo, Africa Expenditure Pattern, 1980/81 = 100. ./ Producer price per kilo lint equivalent, assuming 40n yield of lint per kilo seed cotton. - 79 - International Development Association ANEX 11 FOR OMCUL USE ONLY Page 1 of 3 IDA/SecM84-233 FROM: Senior Vice Presidents Operations July 10, 1984 RELEASE OF THE SECOND TRANCHE OF THE STRUCTURAL ADJUSTMENT CREDITS TO TOGO 1 *As provided in the Development Credit and the Special Fund Credit Agreements, discussions were held with the Government in March/April 1984 and again in June 1984 to review the implementation of the structural adjustment program supported by the credit. The review coveted both the general progress of the program and the implementation of the specific measurca related to the release of the second tranche. Conditions for the Release of the Second Tranche 2. There are four conditions for the release of the second tranche (Schedules 3 to the Development Credit and Special Fund Credit Agreements): a. start of implementation of decisions taken in consultation with IDA regarding the proposed conversion of the oil refinery tanks into a regional fuel depot; b. adoption -f an appropriate medium-term producer price policy for major export crops, including specific price increases for the cocoa, coffee and cotton during the 1983/84 crop year; Questiori on this document may be referred to Mr. Loso Boya (extension 74562). Distribution: Executive Directors and Alternates President Senior Vice Presidents Senior Management Council Vice Presidents, IFC Directors and Department Heads, Bank and IFC This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authoriatiOn. ANNEX II - 80 - Page 2 of 3 c. adoption of an appropriate marketing policy for food crops; and d. adoption of an appropriate Investment Program for 1984 and 1985. 3. With regard to condition (a) above, the Government, after closing down the uneconomic operations of the oil refinery, has in consultation with IDA prepared terms of reference for feasibility studies for conversion into a fuel depot which are currently underway. A private group has recently approached Government with proposals for the rehabilitation of the refinery but Government has assured the Bank that it will not agree to any plans which would imply reopening the refinery at Goverment's risk or new investments by the State to maintain the refinery in operation. As to condition (b), a medium-term pricing policy for export crops, agreed to by the Bank, has been adopted by Government. Under this policy Government will provide incentives to farmers through remunerative producer prices in order to maintain a high output of export crops. Specific pricc increases for crops have already been implemented as follows: 23% for coffee to 290 CFAF/Kg; 17% for cocoa to 275 CFAF/kg; and 15% for cotton to 75 CFAF/kg. These increases represent a major step towards implementation of the stated policy. With respect to condition (c), a satisfactory marketing policy for food crops has been adopted. The role and scope of operations of the Government grain marketing board, Togograin, have been reduced. Only a limited stock of foods, not exceeding 10,000 tons, would be maintained by the Government for food security purposes. At the same time, Government will refrain from interfering with the production and marketing of foodcrops, including possible export to neighboring countries when conditions permit. As regards condition (d), with technical assistance provided under the structural adjustment package, the Government prepared last fall an investment program covering 1984 through 1986. The program was reviewed in January 1984 by concurrent Bank and Fund missions and found satisfactory. General Progress of the Adjustment Program 4. Progress in the other areas of adjustment is also satisfactory. The Government's overall planning capacity has been strengthened and a three- year rolling investment programming system has been put in place. The Government has adopted an acceptable overall strategy for the future development of the agricultural sector and, as noted above, specific policies for export crops pricing and food crops marketing have been adopted. A large number of studies of key state enterprises, including management and financial audits for public utility companies have been completed with the exception of a few studies which are expected soon. In the case of those studies already completed, progress is being made in implementing the reform proposals. Final decisions on the restructuring of state enterprises have been somewhat slow but action on the most important cases is underway as follows: (i) the steel mill has been closed down and agreement has been reached with a private investor to operate the rolling mill and possibly reopen the electric furnace when market conditions permit; (ii) the trucking company, Togoroute, has also been closed and negotiations with private partners to restructure Togoroute's operations are at an advanced stage; (iii) steps have been taken to improve e,.7:fizi.enz*-,:1.7 the h -zn. oteli, and the hcte1.->, i. agreC4 to avoid rate .ars. Also, a nte hotel sector strategv 13 'e-. prepared, which aims to improve the performance of the existine stIte "V1s by reviewing their accounting systems, establishing performance criteria and renegitiating the existing management contracts for the large hotels. In addition, the Government has successfully launched a Otabilization plan designed, in the short-term, to counteract the deterioration of internal and external balances and to al3eviate, in the medium term, structural problems that hinder economic growth. The stabilization plan, endorsed by the 1MF in the framework of successive financial programs supported by 5candby arrangements from the Fund and debt rescheduling, consists mainly of a set of budgetary and fiscal measures aimed at increasing government revenues, reducing current and capital expenditures in relation to GDP while improving their structure. A new program for 1984/85 recently negotiated was approved by the Fund Board on May 7, 1984. 6. As a result of actions taken by Government within these programs, the public sector deficit is expected to decline from 3.4% of GDP in 1983 to 2.9% in 1984. In addition, Togo met all its external debt service obligations in 1983 as stipulated under the Paris Club rescheduling agreements and, with further debt consolidation, the country had virtually no external arrears at the end of 1983. These results have been achieved despite a prolonged drought affecting West Africa and an unfavorable external environment: the phosphate market, the country's major foreign exchange earner, remains sluggish; high international interest rates have contributed to the debt service rising to 43% of Government revenue. Although we expect that in 1984 there will be only a modest real GDP growth (less than 2%), the pursuit of strict budgetary and investment policies should lead to conditions compatible with a gradual resumption of growth. Release of the Second Tranche 7. In the light of the satisfactoey progress made on all aspects of the program and since the specific conditions of second tranche release have all been met, we notified the Government of Togo that the second tranche of the Structural Adjustment Credits of SDR 13.8 million is now available for disbursement. Ernest Stern through April 1986 (in thousands) SC I TAJ fuS) TA2 (SDR s) IDA SPA Ttal Cumulative 1211 -- -. 9.4 M-2-- 574.7 40.2 121 14704.0 7,183.3 11.1d71J1.6 829.4 January-September -* -- -- 572.0 493.3 October 1,249.9 25.6 1,275.5 1,275.5 82.0 113.4 November 9,410.3 3,266.2 12,676.5 13,952.0 87.6 148.1 December 4,044.6 3,891.5 7,936.1 21,888.1 -- 74.6 1943,743.7 11,251.7 14,995.4 3.3760.9 January 295.2 916.7 1,211.9 23,100.0 130.1 406.2 February-June ** -- -* ** July 1/ 232.5 4,044.8 4,277.3 27,377.3 126.1 33.9 August -- -- -* 27,3'7.3 94.9 46.3 September -- -- -- 27,377.3 2.2 46.9 October 3,166.9 4,644.2 7,811.1 35,188.4 -- 125.9 November -- 1,592.5 1,592.5 36,780.9 -- December 49.1 53.5 102.6 36,883.5 -- 101.7 MS2,624.9 5,296.6 7,921.5 176.9 617.9 January 2,587.9 -- 2,587.9 39,417.4 34.0 32.7 February 37.0 5,296.6 5,333.6 44,805.0 -- 17.7 March-December -- -- -- 142.9 567.5 1"fi - 20.6 11 574.7 January-April "utotal 21,073.4 23,731.6 44,805.0 2147 2,823.1 Netherlands Grant Refund 3/ -2,623.4 -5,281.6 -7,905.0 Total 18,450.0 18,450.0 36900.0 2,184.7 2.823.1 Balance Available 4/30/86 4' ** -- -- 15.3 295.6 2/ Balance Available 4/30/86 5/ -- -- -- -- 246.9 Hemorandm Item Tranching of SAC 18,450.0 18450.0 36..900.0 First Tranche 15,000.0 8,100.0 23,100.0 Second Tranche 3,450.0 10,350.0 13,800.0 I/ Second Tranche release July 9, 1984. / USS20.6 thousand (SDR 18.7 thousand) transferred to 1270-TO. 3/ Reimbursements to IDA and SFA December 1984 by Netherlaads Government for disbursements made on its behalf November 1984-February 1985. 4/ Arithmetic balance. 5/ LOA records 6/86. ANNEX IV -83 - SUPERVISION SCHEDULE SAC I TA I TA II 1979 (6/79 Board Approval) (10/79 Effectiveness) 1980 March, 1980 May, 1980 1981 April, 1981 1982 March, 1982 (6/82 Board Approval) November, 1982 (11/82 Effectiveness) 1983 (5/83 Board Approval) April, 1983 April, 1983 June, 1983 June, 1983 June, 1983 (9/83 Effectiveness) November, 1983 November, 1983 November, 1983 1984 March-April, 1984 March-April, 1984 March-April, 1984 December, 1984 December, 1984 1985 March, 1986 March, 1985 March, 1985 December, 1985 I ANNEX V - 84 - IMF Stand-By Arrangements Period Amount Utilized June 1979 * December 1980 15.0 13.3 February 1981 - February 1983 47.5 7.3 March 1983 - April 1984 21.4 21.4 May 1984 - May 1985 19.0 19.0